Why Investors Shouldn't Be Surprised By Technocraft Industries (India) Limited's (NSE:TIIL) 30% Share Price Surge

Technocraft Industries (India) Limited (NSE:TIIL) shares have continued their recent momentum with a 30% gain in the last month alone. The last month tops off a massive increase of 120% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Technocraft Industries (India)'s P/E ratio of 32.4x, since the median price-to-earnings (or "P/E") ratio in India is also close to 35x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

The recent earnings growth at Technocraft Industries (India) would have to be considered satisfactory if not spectacular. It might be that many expect the respectable earnings performance to only match most other companies over the coming period, which has kept the P/E from rising. If not, then at least existing shareholders probably aren't too pessimistic about the future direction of the share price.

See our latest analysis for Technocraft Industries (India)

Although there are no analyst estimates available for Technocraft Industries (India), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The P/E?

In order to justify its P/E ratio, Technocraft Industries (India) would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a worthy increase of 5.3%. The latest three year period has also seen an excellent 97% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is predicted to deliver 26% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised earnings results.

In light of this, it's understandable that Technocraft Industries (India)'s P/E sits in line with the majority of other companies. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

What We Can Learn From Technocraft Industries (India)'s P/E?

Technocraft Industries (India)'s stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 Technocraft Industries (India) maintains its moderate P/E off the back of its recent three-year growth being in line with the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with Technocraft Industries (India).

Of course, you might also be able to find a better stock than Technocraft Industries (India). 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com