Kirloskar Pneumatic Company Limited's (NSE:KIRLPNU) P/E Is Still On The Mark Following 25% Share Price Bounce

Kirloskar Pneumatic Company Limited (NSE:KIRLPNU) shares have had a really impressive month, gaining 25% after a shaky period beforehand. The annual gain comes to 202% following the latest surge, making investors sit up and take notice.

After such a large jump in price, given close to half the companies in India have price-to-earnings ratios (or "P/E's") below 32x, you may consider Kirloskar Pneumatic as a stock to avoid entirely with its 56.8x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Kirloskar Pneumatic 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.

View our latest analysis for Kirloskar Pneumatic

Keen to find out how analysts think Kirloskar Pneumatic's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Kirloskar Pneumatic's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Kirloskar Pneumatic's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 83%. The strong recent performance means it was also able to grow EPS by 137% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 24% each year as estimated by the dual analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 19% each year, which is noticeably less attractive.

In light of this, it's understandable that Kirloskar Pneumatic's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

The strong share price surge has got Kirloskar Pneumatic's P/E rushing to great heights as well. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Kirloskar Pneumatic maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 1 warning sign for Kirloskar Pneumatic that we have uncovered.

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.