Investors Appear Satisfied With RPG Life Sciences Limited's (NSE:RPGLIFE) Prospects As Shares Rocket 30%

The RPG Life Sciences Limited (NSE:RPGLIFE) share price has done very well over the last month, posting an excellent gain of 30%. Looking back a bit further, it's encouraging to see the stock is up 97% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think RPG Life Sciences' price-to-earnings (or "P/E") ratio of 36.3x is worth a mention when the median P/E in India is similar at about 34x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

RPG Life Sciences has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

See our latest analysis for RPG Life Sciences

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on RPG Life Sciences' earnings, revenue and cash flow.

How Is RPG Life Sciences' Growth Trending?

RPG Life Sciences' P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 29% last year. The latest three year period has also seen an excellent 107% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

It's interesting to note that the rest of the market is similarly expected to grow by 25% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's understandable that RPG Life Sciences' P/E sits in line with the majority of other companies. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

The Final Word

Its shares have lifted substantially and now RPG Life Sciences' P/E is also back up to the market median. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that RPG Life Sciences maintains its moderate P/E off the back of its recent three-year growth being in line with the wider market forecast, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

It is also worth noting that we have found 1 warning sign for RPG Life Sciences that you need to take into consideration.

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

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com