There's Reason For Concern Over Texmaco Rail & Engineering Limited's (NSE:TEXRAIL) Price

With a median price-to-earnings (or "P/E") ratio of close to 30x in India, you could be forgiven for feeling indifferent about Texmaco Rail & Engineering Limited's (NSE:TEXRAIL) P/E ratio of 28.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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Texmaco Rail & Engineering certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Texmaco Rail & Engineering

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

How Is Texmaco Rail & Engineering's Growth Trending?

The only time you'd be comfortable seeing a P/E like Texmaco Rail & Engineering's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 90% gain to the company's bottom line. The latest three year period has also seen an excellent 733% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 0.6% during the coming year according to the only analyst following the company. That's not great when the rest of the market is expected to grow by 23%.

In light of this, it's somewhat alarming that Texmaco Rail & Engineering's P/E sits in line with the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

What We Can Learn From Texmaco Rail & Engineering's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Texmaco Rail & Engineering currently trades on a higher than expected P/E for a company whose earnings are forecast to decline. When we see a poor outlook with earnings heading backwards, we suspect share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 2 warning signs for Texmaco Rail & Engineering (1 doesn't sit too well with us!) that we have uncovered.

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.