Investors Appear Satisfied With V-MARC India Limited's (NSE:VMARCIND) Prospects As Shares Rocket 26%

V-MARC India Limited (NSE:VMARCIND) shares have continued their recent momentum with a 26% gain in the last month alone. The last month tops off a massive increase of 259% in the last year.

Since its price has surged higher, V-MARC India's price-to-earnings (or "P/E") ratio of 41.9x might make it look like a 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. 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.

Recent times have been quite advantageous for V-MARC India as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for V-MARC India

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on V-MARC India's earnings, revenue and cash flow.

Does Growth Match The High P/E?

V-MARC India's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 157%. The strong recent performance means it was also able to grow EPS by 242% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 27% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that V-MARC India's P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Final Word

The large bounce in V-MARC India's shares has lifted the company's P/E to a fairly high level. 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 V-MARC India maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 4 warning signs for V-MARC India (of which 1 is potentially serious!) you should know about.

If you're unsure about the strength of V-MARC India's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.