The Market Lifts Tirupati Forge Limited (NSE:TIRUPATIFL) Shares 25% But It Can Do More

Tirupati Forge Limited (NSE:TIRUPATIFL) shares have continued their recent momentum with a 25% gain in the last month alone. The annual gain comes to 233% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, there still wouldn't be many who think Tirupati Forge's price-to-earnings (or "P/E") ratio of 35.9x is worth a mention when the median P/E in India is similar at about 35x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Earnings have risen at a steady rate over the last year for Tirupati Forge, which is generally not a bad outcome. One possibility is that the P/E is moderate because investors think this good earnings growth might only be parallel to the broader market in the near future. If not, then at least existing shareholders probably aren't too pessimistic about the future direction of the share price.

View 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.

How Is Tirupati Forge's Growth Trending?

The only time you'd be comfortable seeing a P/E like Tirupati Forge's is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 3.4% last year. The latest three year period has also seen an excellent 725% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Tirupati Forge is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On Tirupati Forge's P/E

Tirupati Forge's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Tirupati Forge revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you take the next step, you should know about the 2 warning signs for Tirupati Forge (1 is a bit concerning!) that we have uncovered.

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.