Krsnaa Diagnostics Limited's (NSE:KRSNAA) 28% Jump Shows Its Popularity With Investors

Krsnaa Diagnostics Limited (NSE:KRSNAA) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Taking a wider view, although not as strong as the last month, the full year gain of 18% is also fairly reasonable.

Since its price has surged higher, Krsnaa Diagnostics may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 39x, since almost half of all companies in India have P/E ratios under 34x and even P/E's lower than 19x 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 as high as it is.

Krsnaa Diagnostics could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely 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?

The only time you'd be truly comfortable seeing a P/E as high as Krsnaa Diagnostics' is when the company's growth is on track to outshine the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 9.5%. As a result, earnings from three years ago have also fallen 89% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 53% each year as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 22% per annum growth forecast for the broader market.

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 Bottom Line On Krsnaa Diagnostics' P/E

Krsnaa Diagnostics' P/E is getting right up there since its shares have risen strongly. 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. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Krsnaa Diagnostics (of which 1 doesn't sit too well with us!) 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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com