Rolex Rings Limited (NSE:ROLEXRINGS) Stocks Shoot Up 37% But Its P/E Still Looks Reasonable

Rolex Rings Limited (NSE:ROLEXRINGS) shares have had a really impressive month, gaining 37% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 32%.

Following the firm bounce in price, Rolex Rings may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 44.9x, 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. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Rolex Rings hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for Rolex Rings

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

Is There Enough Growth For Rolex Rings?

Rolex Rings' P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 21%. Still, the latest three year period has seen an excellent 58% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 44% over the next year. Meanwhile, the rest of the market is forecast to only expand by 25%, which is noticeably less attractive.

In light of this, it's understandable that Rolex Rings' 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 large bounce in Rolex Rings' shares has lifted the company's P/E to a fairly high level. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Rolex Rings' 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.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Rolex Rings with six simple checks.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.