The Market Lifts V-MARC India Limited (NSE:VMARCIND) Shares 28% But It Can Do More

V-MARC India Limited (NSE:VMARCIND) shares have continued their recent momentum with a 28% gain in the last month alone. The annual gain comes to 249% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, it's still not a stretch to say that V-MARC India's price-to-earnings (or "P/E") ratio of 36.1x right now seems quite "middle-of-the-road" compared to the market in India, where the median P/E ratio is around 34x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

V-MARC India certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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.

Check out 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 P/E?

V-MARC India's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a terrific increase of 157%. Pleasingly, EPS has also lifted 242% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 25% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's curious that V-MARC India's P/E sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Its shares have lifted substantially and now V-MARC India's P/E is also back up to the market median. 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 V-MARC India currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

Having said that, be aware V-MARC India is showing 3 warning signs in our investment analysis, and 2 of those are significant.

You might be able to find a better investment than V-MARC India. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.