Stock Analysis

What You Can Learn From RPG Life Sciences Limited's (NSE:RPGLIFE) P/E

NSEI:RPGLIFE
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RPG Life Sciences Limited's (NSE:RPGLIFE) price-to-earnings (or "P/E") ratio of 17.7x 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 12x and even P/E's below 6x 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 lofty.

With earnings growth that's exceedingly strong of late, RPG Life Sciences has been doing very well. 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 RPG Life Sciences

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NSEI:RPGLIFE Price Based on Past Earnings July 28th 2020
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on RPG Life Sciences will help you shine a light on its historical performance.

How Is RPG Life Sciences' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as RPG Life Sciences' is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered an exceptional 167% gain to the company's bottom line. The latest three year period has also seen an excellent 140% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is predicted to shrink 4.1% in the next 12 months, the company's positive momentum based on recent medium-term earnings results is a bright spot for the moment.

With this information, we can see why RPG Life Sciences is trading at a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse. However, its current earnings trajectory will be very difficult to maintain against the headwinds other companies are facing at the moment.

The Key Takeaway

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.

We've established that RPG Life Sciences maintains its high P/E on the strength of its recentthree-year growth beating forecasts for a struggling market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. We still remain cautious about the company's ability to stay its recent course and swim against the current of the broader market turmoil. Otherwise, it's hard to see the share price falling strongly in the near future if its earnings performance persists.

Before you settle on your opinion, we've discovered 3 warning signs for RPG Life Sciences that you should be aware of.

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. 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.
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