Market Participants Recognise Techno Electric & Engineering Company Limited's (NSE:TECHNOE) Earnings

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 26x, you may consider Techno Electric & Engineering Company Limited (NSE:TECHNOE) as a stock to potentially avoid with its 30.5x 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 advantageous for Techno Electric & Engineering as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Techno Electric & Engineering

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How Is Techno Electric & Engineering's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 32% gain to the company's bottom line. Pleasingly, EPS has also lifted 71% 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.

Shifting to the future, estimates from the sole analyst covering the company suggest earnings should grow by 31% over the next year. With the market only predicted to deliver 25%, the company is positioned for a stronger earnings result.

With this information, we can see why Techno Electric & Engineering 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.

The Bottom Line On Techno Electric & Engineering's P/E

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 Techno Electric & Engineering'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.

Before you take the next step, you should know about the 2 warning signs for Techno Electric & Engineering (1 shouldn't be ignored!) that we have uncovered.

If these risks are making you reconsider your opinion on Techno Electric & Engineering, 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.