Vijaya Diagnostic Centre Limited's (NSE:VIJAYA) Shareholders Might Be Looking For Exit

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 31x, you may consider Vijaya Diagnostic Centre Limited (NSE:VIJAYA) as a stock to avoid entirely with its 65x 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 advantageous for Vijaya Diagnostic Centre as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Vijaya Diagnostic Centre

Want the full picture on analyst estimates for the company? Then our free report on Vijaya Diagnostic Centre will help you uncover what's on the horizon.

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

Vijaya Diagnostic Centre's 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 39% last year. Pleasingly, EPS has also lifted 33% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 24% during the coming year according to the six analysts following the company. That's shaping up to be similar to the 24% growth forecast for the broader market.

In light of this, it's curious that Vijaya Diagnostic Centre's P/E sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From Vijaya Diagnostic Centre's P/E?

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.

Our examination of Vijaya Diagnostic Centre's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Vijaya Diagnostic Centre with six simple checks will allow you to discover any risks that could be an issue.

You might be able to find a better investment than Vijaya Diagnostic Centre. 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.