Why Investors Shouldn't Be Surprised By DJ Mediaprint & Logistics Limited's (NSE:DJML) 27% Share Price Surge

Despite an already strong run, DJ Mediaprint & Logistics Limited (NSE:DJML) shares have been powering on, with a gain of 27% in the last thirty days. The last month tops off a massive increase of 110% in the last year.

Since its price has surged higher, DJ Mediaprint & Logistics' price-to-earnings (or "P/E") ratio of 76x 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 30x and even P/E's below 17x 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 so lofty.

DJ Mediaprint & Logistics certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for DJ Mediaprint & Logistics

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on DJ Mediaprint & Logistics will help you shine a light on its historical performance.

Does Growth Match The High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like DJ Mediaprint & Logistics' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 51%. Pleasingly, EPS has also lifted 210% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

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 understandable that DJ Mediaprint & Logistics' P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Key Takeaway

The strong share price surge has got DJ Mediaprint & Logistics' P/E rushing to great heights as well. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that DJ Mediaprint & Logistics 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.

You should always think about risks. Case in point, we've spotted 2 warning signs for DJ Mediaprint & Logistics you should be aware of.

If you're unsure about the strength of DJ Mediaprint & Logistics' 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.