Kilitch Drugs (India) Limited (NSE:KILITCH) Looks Just Right With A 26% Price Jump

Despite an already strong run, Kilitch Drugs (India) Limited (NSE:KILITCH) shares have been powering on, with a gain of 26% in the last thirty days. The annual gain comes to 195% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Kilitch Drugs (India)'s price-to-earnings (or "P/E") ratio of 50.7x 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.

Kilitch Drugs (India) 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.

View our latest analysis for Kilitch Drugs (India)

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

Does Growth Match The High P/E?

Kilitch Drugs (India)'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.

If we review the last year of earnings growth, the company posted a terrific increase of 62%. The strong recent performance means it was also able to grow EPS by 2,930% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

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 Kilitch Drugs (India) 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

Kilitch Drugs (India)'s P/E is flying high just like its stock has during the last month. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Kilitch Drugs (India) 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.

Before you settle on your opinion, we've discovered 3 warning signs for Kilitch Drugs (India) (1 is potentially serious!) that you should be aware of.

If these risks are making you reconsider your opinion on Kilitch Drugs (India), 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.