Earnings Tell The Story For Route Mobile Limited (NSE:ROUTE) As Its Stock Soars 30%

By
Simply Wall St
Published
February 11, 2021
NSEI:ROUTE
Source: Shutterstock

Route Mobile Limited (NSE:ROUTE) shares have continued their recent momentum with a 30% gain in the last month alone. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Following the firm bounce in price, given close to half the companies in India have price-to-earnings ratios (or "P/E's") below 18x, you may consider Route Mobile as a stock to avoid entirely with its 59.4x P/E ratio. 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.

Recent times have been pleasing for Route Mobile as its earnings have risen in spite of the market's earnings going into reverse. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Route Mobile

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NSEI:ROUTE Price Based on Past Earnings February 12th 2021
Want the full picture on analyst estimates for the company? Then our free report on Route Mobile will help you uncover what's on the horizon.

How Is Route Mobile's Growth Trending?

In order to justify its P/E ratio, Route Mobile would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 85% last year. The latest three year period has also seen an excellent 121% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 31% over the next year. Meanwhile, the rest of the market is forecast to only expand by 27%, which is noticeably less attractive.

In light of this, it's understandable that Route Mobile's 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.

The Key Takeaway

Shares in Route Mobile have built up some good momentum lately, which has really inflated its P/E. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Route Mobile's 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. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Route Mobile you should be aware of.

You might be able to find a better investment than Route Mobile. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. 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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