Vertoz Advertising Limited's (NSE:VERTOZ) P/E Is Still On The Mark Following 25% Share Price Bounce

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 last month tops off a massive increase of 254% in the last year.

After such a large jump in price, Vertoz Advertising may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 65.9x, 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.

Vertoz Advertising certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It seems that many are expecting the strong 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 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.

Is There Enough Growth For Vertoz Advertising?

Vertoz Advertising's 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.

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. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's noticeably more attractive on an annualised basis.

With this information, we can see why Vertoz Advertising 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.

The Key Takeaway

Vertoz Advertising'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 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.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Vertoz Advertising (2 are a bit concerning!) that you should be aware of before investing here.

If you're unsure about the strength of Vertoz Advertising's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.