Investors Interested In Torrent Pharmaceuticals Limited's (NSE:TORNTPHARM) Earnings

Torrent Pharmaceuticals Limited's (NSE:TORNTPHARM) price-to-earnings (or "P/E") ratio of 55.4x 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 26x and even P/E's below 15x 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.

Torrent Pharmaceuticals certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Torrent Pharmaceuticals

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

Is There Enough Growth For Torrent Pharmaceuticals?

In order to justify its P/E ratio, Torrent Pharmaceuticals would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 25%. Pleasingly, EPS has also lifted 53% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 30% as estimated by the analysts watching the company. With the market only predicted to deliver 26%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Torrent Pharmaceuticals' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Torrent Pharmaceuticals' P/E?

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 Torrent Pharmaceuticals' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

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

If these risks are making you reconsider your opinion on Torrent Pharmaceuticals, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.