Hi-Tech Pipes Limited (NSE:HITECH) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 45% over that time.
In spite of the firm bounce in price, there still wouldn't be many who think Hi-Tech Pipes' price-to-earnings (or "P/E") ratio of 29.3x is worth a mention when the median P/E in India is similar at about 28x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.
Recent times haven't been advantageous for Hi-Tech Pipes as its earnings have been rising slower than most other companies. It might be that many expect the uninspiring earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.
Check out our latest analysis for Hi-Tech Pipes
Does Growth Match The P/E?
Hi-Tech Pipes' P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.
Retrospectively, the last year delivered a decent 5.1% gain to the company's bottom line. EPS has also lifted 26% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.
Turning to the outlook, the next three years should generate growth of 27% per year as estimated by the dual analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 19% each year, which is noticeably less attractive.
With this information, we find it interesting that Hi-Tech Pipes is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.
What We Can Learn From Hi-Tech Pipes' P/E?
Hi-Tech Pipes' stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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.
Our examination of Hi-Tech Pipes' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.
You should always think about risks. Case in point, we've spotted 1 warning sign for Hi-Tech Pipes you should be aware of.
Of course, you might also be able to find a better stock than Hi-Tech Pipes. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
Valuation is complex, but we're here to simplify it.
Discover if Hi-Tech Pipes might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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