Titagarh Rail Systems Limited's (NSE:TITAGARH) P/E Is Still On The Mark Following 27% Share Price Bounce

Titagarh Rail Systems Limited (NSE:TITAGARH) shares have continued their recent momentum with a 27% gain in the last month alone. The last month tops off a massive increase of 223% in the last year.

Since its price has surged higher, Titagarh Rail Systems' price-to-earnings (or "P/E") ratio of 79.9x might make it look like a strong sell right now compared to the market in India, where around half of the companies have P/E ratios below 33x and even P/E's below 19x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Titagarh Rail Systems 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Titagarh Rail Systems

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

Does Growth Match The High P/E?

Titagarh Rail Systems' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered an exceptional 95% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 35% per annum during the coming three years according to the five analysts following the company. That's shaping up to be materially higher than the 22% each year growth forecast for the broader market.

In light of this, it's understandable that Titagarh Rail Systems' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Titagarh Rail Systems' P/E?

Shares in Titagarh Rail Systems have built up some good momentum lately, which has really inflated its P/E. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Titagarh Rail Systems' 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. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Titagarh Rail Systems (2 are significant!) that you need to be mindful of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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