Investors Appear Satisfied With KEC International Limited's (NSE:KEC) Prospects

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 32x, you may consider KEC International Limited (NSE:KEC) as a stock to avoid entirely with its 67.1x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

KEC International certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for KEC International

If you'd like to see what analysts are forecasting going forward, you should check out our free report on KEC International.

How Is KEC International's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like KEC International's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 109% last year. Still, incredibly EPS has fallen 28% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 52% per year over the next three years. With the market only predicted to deliver 21% each year, the company is positioned for a stronger earnings result.

With this information, we can see why KEC International is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From KEC International's P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of KEC International's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for KEC International (1 makes us a bit uncomfortable) you should be aware of.

If these risks are making you reconsider your opinion on KEC International, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.