After Leaping 31% Venus Pipes and Tubes Limited (NSE:VENUSPIPES) Shares Are Not Flying Under The Radar

Despite an already strong run, Venus Pipes and Tubes Limited (NSE:VENUSPIPES) shares have been powering on, with a gain of 31% in the last thirty days. The last month tops off a massive increase of 161% in the last year.

After such a large jump in price, Venus Pipes and Tubes' price-to-earnings (or "P/E") ratio of 52x might make it look like a strong sell right now compared to the market in India, where around half of the companies have P/E ratios below 31x and even P/E's below 17x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With earnings growth that's superior to most other companies of late, Venus Pipes and Tubes has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Venus Pipes and Tubes

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Venus Pipes and Tubes.

Is There Enough Growth For Venus Pipes and Tubes?

Venus Pipes and Tubes' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 73% last year. The strong recent performance means it was also able to grow EPS by 103% 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 57% during the coming year according to the five analysts following the company. That's shaping up to be materially higher than the 25% growth forecast for the broader market.

In light of this, it's understandable that Venus Pipes and Tubes' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

The strong share price surge has got Venus Pipes and Tubes' P/E rushing to great heights as well. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Venus Pipes and Tubes maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Venus Pipes and Tubes with six simple checks on some of these key factors.

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

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.