Hi-Tech Pipes Limited (NSE:HITECH) Not Lagging Market On Growth Or Pricing

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 33x, you may consider Hi-Tech Pipes Limited (NSE:HITECH) as a stock to avoid entirely with its 63.9x 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 haven't been advantageous for Hi-Tech Pipes as its earnings have been rising slower than most other companies. 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.

View our latest analysis for Hi-Tech Pipes

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hi-Tech Pipes.

Does Growth Match The High P/E?

In order to justify its P/E ratio, Hi-Tech Pipes would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a decent 8.1% gain to the company's bottom line. The solid recent performance means it was also able to grow EPS by 20% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 50% per year over the next three years. With the market only predicted to deliver 21% each year, the company is positioned for a stronger earnings result.

With this information, we can see why Hi-Tech Pipes is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Hi-Tech Pipes' P/E

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.

We've established that Hi-Tech Pipes maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 3 warning signs for Hi-Tech Pipes (2 are a bit concerning!) that we have uncovered.

You might be able to find a better investment than Hi-Tech Pipes. 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.