Investors Still Aren't Entirely Convinced By Thomas Scott (India) Limited's (NSE:THOMASCOTT) Earnings Despite 66% Price Jump

Thomas Scott (India) Limited (NSE:THOMASCOTT) shareholders would be excited to see that the share price has had a great month, posting a 66% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 69% in the last year.

Even after such a large jump in price, it's still not a stretch to say that Thomas Scott (India)'s price-to-earnings (or "P/E") ratio of 36.2x right now seems quite "middle-of-the-road" compared to the market in India, where the median P/E ratio is around 33x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Thomas Scott (India) certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Thomas Scott (India)

Although there are no analyst estimates available for Thomas Scott (India), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Thomas Scott (India)'s Growth Trending?

In order to justify its P/E ratio, Thomas Scott (India) would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 177% gain to the company's bottom line. Pleasingly, EPS has also lifted 138% 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.

Comparing that to the market, which is only predicted to deliver 26% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it interesting that Thomas Scott (India) is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

Its shares have lifted substantially and now Thomas Scott (India)'s P/E is also back up to the market median. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Thomas Scott (India) currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

Before you take the next step, you should know about the 4 warning signs for Thomas Scott (India) (1 is significant!) that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.