Manorama Industries Limited's (NSE:MANORAMA) P/E Is Still On The Mark Following 31% Share Price Bounce

Manorama Industries Limited (NSE:MANORAMA) shareholders would be excited to see that the share price has had a great month, posting a 31% gain and recovering from prior weakness. The last month tops off a massive increase of 115% in the last year.

After such a large jump in price, given close to half the companies in India have price-to-earnings ratios (or "P/E's") below 31x, you may consider Manorama Industries as a stock to avoid entirely with its 70.7x 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 Manorama Industries as its earnings have been rising very briskly. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Manorama Industries

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

How Is Manorama Industries' Growth Trending?

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

Retrospectively, the last year delivered an exceptional 38% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 128% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is only predicted to deliver 24% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's understandable that Manorama Industries' 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 Bottom Line On Manorama Industries' P/E

Manorama Industries' P/E is flying high just like its stock has during the last month. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Manorama Industries 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.

Having said that, be aware Manorama Industries is showing 1 warning sign in our investment analysis, you should know about.

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