After Leaping 27% Salzer Electronics Limited (NSE:SALZERELEC) Shares Are Not Flying Under The Radar

Those holding Salzer Electronics Limited (NSE:SALZERELEC) shares would be relieved that the share price has rebounded 27% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The last 30 days bring the annual gain to a very sharp 30%.

Following the firm bounce in price, given around half the companies in India have price-to-earnings ratios (or "P/E's") below 25x, you may consider Salzer Electronics as a stock to potentially avoid with its 28.3x 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 as high as it is.

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Recent times have been quite advantageous for Salzer Electronics as its earnings have been rising very briskly. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Salzer Electronics

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Salzer Electronics' earnings, revenue and cash flow.

Does Growth Match The High P/E?

In order to justify its P/E ratio, Salzer Electronics would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered an exceptional 63% gain to the company's bottom line. Pleasingly, EPS has also lifted 142% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Salzer Electronics is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Bottom Line On Salzer Electronics' P/E

Salzer Electronics shares have received a push in the right direction, but its P/E is elevated too. 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 Salzer Electronics revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. If recent medium-term earnings trends continue, 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 2 warning signs for Salzer Electronics that you should be aware of.

Of course, you might also be able to find a better stock than Salzer Electronics. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.