Oberoi Realty Limited's (NSE:OBEROIRLTY) 29% Share Price Surge Not Quite Adding Up

Despite an already strong run, Oberoi Realty Limited (NSE:OBEROIRLTY) shares have been powering on, with a gain of 29% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 96% in the last year.

Since its price has surged higher, Oberoi Realty may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 35.7x, since almost half of all companies in India have P/E ratios under 30x and even P/E's lower than 17x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times haven't been advantageous for Oberoi Realty as its earnings have been rising slower than most other companies. 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 Oberoi Realty

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Oberoi Realty.

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

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

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. Although pleasingly EPS has lifted 161% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 21% per year over the next three years. With the market predicted to deliver 21% growth per annum, the company is positioned for a comparable earnings result.

With this information, we find it interesting that Oberoi Realty is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On Oberoi Realty's P/E

Oberoi Realty's P/E is getting right up there since its shares have risen strongly. 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.

We've established that Oberoi Realty currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. 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. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Oberoi Realty is showing 1 warning sign in our investment analysis, you should know about.

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.