Why Investors Shouldn't Be Surprised By Time Technoplast Limited's (NSE:TIMETECHNO) 25% Share Price Surge

Time Technoplast Limited (NSE:TIMETECHNO) shares have had a really impressive month, gaining 25% after a shaky period beforehand. The annual gain comes to 172% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, it's still not a stretch to say that Time Technoplast's price-to-earnings (or "P/E") ratio of 31x right now seems quite "middle-of-the-road" compared to the market in India, where the median P/E ratio is around 33x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

With earnings growth that's superior to most other companies of late, Time Technoplast has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Time Technoplast

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

Is There Some Growth For Time Technoplast?

There's an inherent assumption that a company should be matching the market for P/E ratios like Time Technoplast's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 44% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 112% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 21% each year during the coming three years according to the only analyst following the company. With the market predicted to deliver 19% growth per year, the company is positioned for a comparable earnings result.

In light of this, it's understandable that Time Technoplast's P/E sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

Time Technoplast appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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 Time Technoplast's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless these conditions change, they will continue to support the share price at these levels.

Having said that, be aware Time Technoplast is showing 2 warning signs in our investment analysis, you should know about.

If you're unsure about the strength of Time Technoplast's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.