Thyrocare Technologies Limited (NSE:THYROCARE) Looks Just Right With A 26% Price Jump

The Thyrocare Technologies Limited (NSE:THYROCARE) share price has done very well over the last month, posting an excellent gain of 26%. Looking back a bit further, it's encouraging to see the stock is up 40% in the last year.

Since its price has surged higher, Thyrocare Technologies may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 55.8x, since almost half of all companies in India have P/E ratios under 34x and even P/E's lower than 20x 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.

Thyrocare Technologies certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Thyrocare Technologies

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Thyrocare Technologies.

What Are Growth Metrics Telling Us About The High P/E?

Thyrocare Technologies' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 30% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 55% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 35% during the coming year according to the one analyst following the company. With the market only predicted to deliver 26%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Thyrocare Technologies' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Thyrocare Technologies' P/E?

Shares in Thyrocare Technologies have built up some good momentum lately, which has really inflated its P/E. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Thyrocare Technologies' 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Thyrocare Technologies, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on Thyrocare Technologies, 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.

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