Investors Appear Satisfied With IZMO Limited's (NSE:IZMO) Prospects As Shares Rocket 32%

Despite an already strong run, IZMO Limited (NSE:IZMO) shares have been powering on, with a gain of 32% in the last thirty days. The annual gain comes to 150% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, IZMO may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 31.7x, since almost half of all companies in India have P/E ratios under 27x and even P/E's lower than 15x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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Recent times have been quite advantageous for IZMO as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for IZMO

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on IZMO's earnings, revenue and cash flow.

Is There Enough Growth For IZMO?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 69% last year. The strong recent performance means it was also able to grow EPS by 167% 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.

Comparing that to the market, which is only predicted to deliver 25% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's understandable that IZMO's P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Key Takeaway

The large bounce in IZMO's shares has lifted the company's P/E to a fairly high level. 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 IZMO revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for IZMO that you should be aware of.

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

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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.