Mahalaxmi Rubtech Limited (NSE:MHLXMIRU) Looks Just Right With A 32% Price Jump

Mahalaxmi Rubtech Limited (NSE:MHLXMIRU) shares have continued their recent momentum with a 32% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 36%.

After such a large jump in price, given around half the companies in India have price-to-earnings ratios (or "P/E's") below 28x, you may consider Mahalaxmi Rubtech as a stock to potentially avoid with its 41.6x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

The recent earnings growth at Mahalaxmi Rubtech would have to be considered satisfactory if not spectacular. It might be that many expect the reasonable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Mahalaxmi Rubtech

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 Mahalaxmi Rubtech's earnings, revenue and cash flow.

Is There Enough Growth For Mahalaxmi Rubtech?

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

Retrospectively, the last year delivered a decent 5.0% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 340% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 26% shows it's noticeably more attractive on an annualised basis.

With this information, we can see why Mahalaxmi Rubtech is trading at such a high P/E compared to the market. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On Mahalaxmi Rubtech's P/E

Mahalaxmi Rubtech shares have received a push in the right direction, but its P/E is elevated too. 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 Mahalaxmi Rubtech maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Mahalaxmi Rubtech (1 is concerning!) that you should be aware of before investing here.

You might be able to find a better investment than Mahalaxmi Rubtech. 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.