Investors Appear Satisfied With Arvind SmartSpaces Limited's (NSE:ARVSMART) Prospects As Shares Rocket 34%

Arvind SmartSpaces Limited (NSE:ARVSMART) shares have had a really impressive month, gaining 34% after a shaky period beforehand. The last month tops off a massive increase of 111% in the last year.

Following the firm bounce in price, Arvind SmartSpaces' price-to-earnings (or "P/E") ratio of 79.4x 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 34x and even P/E's below 19x 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 so lofty.

With earnings growth that's superior to most other companies of late, Arvind SmartSpaces has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Arvind SmartSpaces

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

How Is Arvind SmartSpaces' Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Arvind SmartSpaces' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 57%. The strong recent performance means it was also able to grow EPS by 273% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 58% per annum as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 22% per year growth forecast for the broader market.

In light of this, it's understandable that Arvind SmartSpaces' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Arvind SmartSpaces' P/E

The strong share price surge has got Arvind SmartSpaces' P/E rushing to great heights as well. 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 Arvind SmartSpaces' 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.

Before you take the next step, you should know about the 2 warning signs for Arvind SmartSpaces that we have uncovered.

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.

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