Quess Corp Limited (NSE:QUESS) Not Lagging Market On Growth Or Pricing

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 29x, you may consider Quess Corp Limited (NSE:QUESS) as a stock to potentially avoid with its 38x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Quess hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Quess

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

How Is Quess' Growth Trending?

In order to justify its P/E ratio, Quess would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a frustrating 22% decrease to the company's bottom line. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 47% per annum over the next three years. With the market only predicted to deliver 20% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Quess' 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.

The Final Word

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.

As we suspected, our examination of Quess' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Quess that you should be aware of.

Of course, you might also be able to find a better stock than Quess. 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.