Subdued Growth No Barrier To Tirupati Forge Limited (NSE:TIRUPATIFL) With Shares Advancing 28%

Despite an already strong run, Tirupati Forge Limited (NSE:TIRUPATIFL) shares have been powering on, with a gain of 28% in the last thirty days. The last 30 days bring the annual gain to a very sharp 83%.

Following the firm bounce in price, given close to half the companies in India have price-to-earnings ratios (or "P/E's") below 29x, you may consider Tirupati Forge as a stock to avoid entirely with its 62.5x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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Tirupati Forge has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Tirupati Forge

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Tirupati Forge will help you shine a light on its historical performance.

Is There Enough Growth For Tirupati Forge?

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

Retrospectively, the last year delivered a decent 10% gain to the company's bottom line. The solid recent performance means it was also able to grow EPS by 19% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 23% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's alarming that Tirupati Forge's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Tirupati Forge's P/E?

Shares in Tirupati Forge have built up some good momentum lately, which has really inflated its P/E. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Tirupati Forge revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Plus, you should also learn about these 2 warning signs we've spotted with Tirupati Forge (including 1 which shouldn't be ignored).

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.