Selan Exploration Technology Limited (NSE:SELAN) Soars 26% But It's A Story Of Risk Vs Reward

Despite an already strong run, Selan Exploration Technology Limited (NSE:SELAN) shares have been powering on, with a gain of 26% in the last thirty days. The last month tops off a massive increase of 169% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Selan Exploration Technology's P/E ratio of 30.5x, since the median price-to-earnings (or "P/E") ratio in India is also close to 32x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Selan Exploration Technology certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Selan Exploration Technology

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

Is There Some Growth For Selan Exploration Technology?

The only time you'd be comfortable seeing a P/E like Selan Exploration Technology's is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 71% last year. The strong recent performance means it was also able to grow EPS by 504% 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 25% shows it's noticeably more attractive on an annualised basis.

With this information, we find it interesting that Selan Exploration Technology is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On Selan Exploration Technology's P/E

Selan Exploration Technology's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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.

We've established that Selan Exploration Technology currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Selan Exploration Technology that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.