After Leaping 26% Shivalik Bimetal Controls Limited (NSE:SBCL) Shares Are Not Flying Under The Radar

Shivalik Bimetal Controls Limited (NSE:SBCL) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 29% in the last year.

After such a large jump in price, given close to half the companies in India have price-to-earnings ratios (or "P/E's") below 33x, you may consider Shivalik Bimetal Controls as a stock to avoid entirely with its 51.1x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Shivalik Bimetal Controls could be doing better as it's been growing earnings less than most other companies lately. One possibility is that the P/E is high because investors think this lacklustre earnings performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Shivalik Bimetal Controls

Want the full picture on analyst estimates for the company? Then our free report on Shivalik Bimetal Controls will help you uncover what's on the horizon.

Is There Enough Growth For Shivalik Bimetal Controls?

The only time you'd be truly comfortable seeing a P/E as steep as Shivalik Bimetal Controls' is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 2.9% last year. Pleasingly, EPS has also lifted 129% 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 superb for the company.

Turning to the outlook, the next year should generate growth of 35% as estimated by the only analyst watching the company. With the market only predicted to deliver 26%, the company is positioned for a stronger earnings result.

With this information, we can see why Shivalik Bimetal Controls 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.

What We Can Learn From Shivalik Bimetal Controls' P/E?

The strong share price surge has got Shivalik Bimetal Controls' P/E rushing to great heights as well. 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.

As we suspected, our examination of Shivalik Bimetal Controls' 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. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Shivalik Bimetal Controls that you should be aware of.

Of course, you might also be able to find a better stock than Shivalik Bimetal Controls. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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.