Earnings Tell The Story For Vertoz Advertising Limited (NSE:VERTOZ) As Its Stock Soars 25%

Despite an already strong run, Vertoz Advertising Limited (NSE:VERTOZ) shares have been powering on, with a gain of 25% in the last thirty days. The annual gain comes to 113% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, Vertoz Advertising's price-to-earnings (or "P/E") ratio of 39.9x might make it look like a sell right now compared to the market in India, where around half of the companies have P/E ratios below 28x and even P/E's below 15x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Vertoz Advertising certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Vertoz Advertising

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

What Are Growth Metrics Telling Us About The High P/E?

Vertoz Advertising's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered an exceptional 103% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 738% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is only predicted to deliver 26% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's understandable that Vertoz Advertising's P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On Vertoz Advertising's P/E

Vertoz Advertising's P/E is getting right up there since its shares have risen strongly. 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.

As we suspected, our examination of Vertoz Advertising revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 4 warning signs for Vertoz Advertising (2 make us uncomfortable!) that you need to take into consideration.

You might be able to find a better investment than Vertoz Advertising. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.