Nasdaq
華爾街日報Silver Touch Technologies Limited (NSE:SILVERTUC) Looks Just Right With A 30% Price Jump
Despite an already strong run, Silver Touch Technologies Limited (NSE:SILVERTUC) shares have been powering on, with a gain of 30% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 45% in the last year.
Following the firm bounce in price, Silver Touch Technologies' price-to-earnings (or "P/E") ratio of 49.4x 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 25x and even P/E's below 14x 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.
Recent times have been quite advantageous for Silver Touch Technologies as its earnings have been rising very briskly. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, 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.
See our latest analysis for Silver Touch Technologies
What Are Growth Metrics Telling Us About The High P/E?
In order to justify its P/E ratio, Silver Touch Technologies would need to produce outstanding growth well in excess of the market.
Retrospectively, the last year delivered an exceptional 39% gain to the company's bottom line. The latest three year period has also seen an excellent 261% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.
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 Silver Touch Technologies' P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.
The Key Takeaway
Shares in Silver Touch Technologies 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.
We've established that Silver Touch Technologies maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.
Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Silver Touch Technologies that you should be aware of.
If you're unsure about the strength of Silver Touch Technologies' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.