Investors Appear Satisfied With Anand Rathi Wealth Limited's (NSE:ANANDRATHI) Prospects As Shares Rocket 26%

Despite an already strong run, Anand Rathi Wealth Limited (NSE:ANANDRATHI) shares have been powering on, with a gain of 26% in the last thirty days. This latest share price bounce rounds out a remarkable 331% gain over the last twelve months.

Following the firm bounce in price, given close to half the companies in India have price-to-earnings ratios (or "P/E's") below 31x, you may consider Anand Rathi Wealth as a stock to avoid entirely with its 65.1x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's exceedingly strong of late, Anand Rathi Wealth has been doing very well. 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.

See our latest analysis for Anand Rathi Wealth

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 Anand Rathi Wealth's earnings, revenue and cash flow.

Is There Enough Growth For Anand Rathi Wealth?

The only time you'd be truly comfortable seeing a P/E as steep as Anand Rathi Wealth's is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 31% last year. The strong recent performance means it was also able to grow EPS by 364% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Anand Rathi Wealth's 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.

What We Can Learn From Anand Rathi Wealth's P/E?

Shares in Anand Rathi Wealth have built up some good momentum lately, which has really inflated its P/E. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Anand Rathi Wealth revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 1 warning sign for Anand Rathi Wealth that you should be aware of.

If these risks are making you reconsider your opinion on Anand Rathi Wealth, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.