Usha Martin Education & Solutions Limited's (NSE:UMESLTD) Popularity With Investors Is Clear

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 28x, you may consider Usha Martin Education & Solutions Limited (NSE:UMESLTD) as a stock to avoid entirely with its 52.7x P/E ratio. 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.

Recent times have been quite advantageous for Usha Martin Education & Solutions 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Usha Martin Education & Solutions

Although there are no analyst estimates available for Usha Martin Education & Solutions, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Usha Martin Education & Solutions' Growth Trending?

In order to justify its P/E ratio, Usha Martin Education & Solutions would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 336%. The strong recent performance means it was also able to grow EPS by 632% 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 24% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Usha Martin Education & Solutions' 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

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.

As we suspected, our examination of Usha Martin Education & Solutions revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. 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.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Usha Martin Education & Solutions (2 are significant) you should be aware of.

If you're unsure about the strength of Usha Martin Education & Solutions' 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.