What You Can Learn From Techno Electric & Engineering Company Limited's (NSE:TECHNOE) P/E

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 31x, you may consider Techno Electric & Engineering Company Limited (NSE:TECHNOE) as a stock to avoid entirely with its 51.3x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Techno Electric & Engineering 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.

See our latest analysis for Techno Electric & Engineering

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

Is There Enough Growth For Techno Electric & Engineering?

In order to justify its P/E ratio, Techno Electric & Engineering would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 123% last year. The latest three year period has also seen an excellent 69% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 25% per annum over the next three years. Meanwhile, the rest of the market is forecast to only expand by 20% each year, which is noticeably less attractive.

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

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 Techno Electric & Engineering 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. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Techno Electric & Engineering (1 doesn't sit too well with us!) that you need to be mindful of.

Of course, you might also be able to find a better stock than Techno Electric & Engineering. 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.