Optimistic Investors Push Marksans Pharma Limited (NSE:MARKSANS) Shares Up 45% But Growth Is Lacking

Marksans Pharma Limited (NSE:MARKSANS) shares have continued their recent momentum with a 45% gain in the last month alone. The annual gain comes to 204% following the latest surge, making investors sit up and take notice.

After such a large jump in price, given around half the companies in India have price-to-earnings ratios (or "P/E's") below 33x, you may consider Marksans Pharma as a stock to potentially avoid with its 43.2x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Marksans Pharma could be doing better as it's been growing earnings less than most other companies lately. One possibility is that the P/E is high because investors think this lacklustre earnings performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Marksans Pharma

Want the full picture on analyst estimates for the company? Then our free report on Marksans Pharma will help you uncover what's on the horizon.

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

In order to justify its P/E ratio, Marksans Pharma would need to produce impressive growth in excess of the market.

If we review the last year of earnings growth, the company posted a worthy increase of 14%. The latest three year period has also seen a 21% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 20% each year over the next three years. Meanwhile, the rest of the market is forecast to expand by 20% per year, which is not materially different.

In light of this, it's curious that Marksans Pharma's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From Marksans Pharma's P/E?

Marksans Pharma shares have received a push in the right direction, but its P/E is elevated too. 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.

Our examination of Marksans Pharma's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Marksans Pharma that you need to be mindful of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.