Kirloskar Pneumatic Company Limited's (NSE:KIRLPNU) P/E Is Still On The Mark Following 30% Share Price Bounce

Kirloskar Pneumatic Company Limited (NSE:KIRLPNU) shares have continued their recent momentum with a 30% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 55%.

Since its price has surged higher, Kirloskar Pneumatic may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 56.2x, since almost half of all companies in India have P/E ratios under 31x and even P/E's lower than 17x are not unusual. 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.

While the market has experienced earnings growth lately, Kirloskar Pneumatic's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Kirloskar Pneumatic

Want the full picture on analyst estimates for the company? Then our free report on Kirloskar Pneumatic will help you uncover what's on the horizon.

Is There Enough Growth For Kirloskar Pneumatic?

In order to justify its P/E ratio, Kirloskar Pneumatic would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 20%. Still, the latest three year period has seen an excellent 179% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 58% over the next year. That's shaping up to be materially higher than the 24% growth forecast for the broader market.

With this information, we can see why Kirloskar Pneumatic is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Kirloskar Pneumatic's P/E?

Kirloskar Pneumatic's P/E is flying high just like its stock has during the last month. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Kirloskar Pneumatic's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. 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 1 warning sign for Kirloskar Pneumatic that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.