Tirupati Forge Limited's (NSE:TIRUPATIFL) P/E Is Still On The Mark Following 32% Share Price Bounce

Despite an already strong run, Tirupati Forge Limited (NSE:TIRUPATIFL) shares have been powering on, with a gain of 32% in the last thirty days. This latest share price bounce rounds out a remarkable 334% gain over the last twelve months.

Since its price has surged higher, Tirupati Forge may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 57.2x, since almost half of all companies in India have P/E ratios under 32x and even P/E's lower than 18x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Tirupati Forge has been doing a decent job lately as it's been growing earnings at a reasonable pace. It might be that many expect the reasonable 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.

View our latest analysis for Tirupati Forge

Although there are no analyst estimates available for Tirupati Forge, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Growth For Tirupati Forge?

In order to justify its P/E ratio, Tirupati Forge would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 3.4% last year. This was backed up an excellent period prior to see EPS up by 680% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 26% shows it's noticeably more attractive on an annualised basis.

With this information, we can see why Tirupati Forge is trading at such a high P/E compared to the market. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

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

Tirupati Forge's P/E is flying high just like its stock has during the last month. 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 Tirupati Forge revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Tirupati Forge that you should be aware of.

If these risks are making you reconsider your opinion on Tirupati Forge, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.