After Leaping 30% Krsnaa Diagnostics Limited (NSE:KRSNAA) Shares Are Not Flying Under The Radar

Krsnaa Diagnostics Limited (NSE:KRSNAA) shares have continued their recent momentum with a 30% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 62%.

After such a large jump in price, Krsnaa Diagnostics may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 47.6x, since almost half of all companies in India have P/E ratios under 30x and even P/E's lower than 17x are not unusual. 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.

Krsnaa Diagnostics could be doing better as it's been growing earnings less than most other companies lately. One possibility is that the P/E is high because investors think this lacklustre earnings performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Krsnaa Diagnostics

Keen to find out how analysts think Krsnaa Diagnostics' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Krsnaa Diagnostics?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Krsnaa Diagnostics' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 17%. The latest three year period has also seen an excellent 38% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 35% per year during the coming three years according to the three analysts following the company. With the market only predicted to deliver 19% per year, the company is positioned for a stronger earnings result.

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

The Key Takeaway

Krsnaa Diagnostics' P/E is flying high just like its stock has during the last month. 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.

As we suspected, our examination of Krsnaa Diagnostics' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Krsnaa Diagnostics (of which 1 is significant!) you should know about.

You might be able to find a better investment than Krsnaa Diagnostics. 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.