Why Investors Shouldn't Be Surprised By Onward Technologies Limited's (NSE:ONWARDTEC) 27% Share Price Surge

The Onward Technologies Limited (NSE:ONWARDTEC) share price has done very well over the last month, posting an excellent gain of 27%. The annual gain comes to 123% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, Onward Technologies may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 53x, since almost half of all companies in India have P/E ratios under 29x and even P/E's lower than 16x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With earnings growth that's superior to most other companies of late, Onward Technologies has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Onward Technologies

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

How Is Onward Technologies' Growth Trending?

In order to justify its P/E ratio, Onward Technologies 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 187%. The strong recent performance means it was also able to grow EPS by 701% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 61% each year as estimated by the sole analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 19% per year, which is noticeably less attractive.

In light of this, it's understandable that Onward Technologies' 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 Onward Technologies' P/E?

Onward Technologies' P/E is flying high just like its stock has during the last month. 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 Onward Technologies' 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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Onward Technologies that you should be aware of.

If these risks are making you reconsider your opinion on Onward Technologies, 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.