Syrma SGS Technology Limited (NSE:SYRMA) Looks Just Right With A 26% Price Jump

Syrma SGS Technology Limited (NSE:SYRMA) shares have continued their recent momentum with a 26% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 39%.

After such a large jump in price, Syrma SGS Technology's price-to-earnings (or "P/E") ratio of 71.1x might make it look like a strong sell right now compared to the market in India, where around half of the companies have P/E ratios below 29x and even P/E's below 16x are quite common. 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.

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Recent times have been advantageous for Syrma SGS Technology as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Syrma SGS Technology

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

How Is Syrma SGS Technology's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Syrma SGS Technology's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 58% gain to the company's bottom line. The latest three year period has also seen an excellent 96% 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 analysts covering the company suggest earnings should grow by 38% per year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 22% per year, which is noticeably less attractive.

In light of this, it's understandable that Syrma SGS Technology's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Syrma SGS Technology's P/E is flying high just like its stock has during the last month. 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 Syrma SGS Technology'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. It's hard to see the share price falling strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Syrma SGS Technology with six simple checks will allow you to discover any risks that could be an issue.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.