The RH PetroGas Limited (SGX:T13) share price has done very well over the last month, posting an excellent gain of 35%. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Following the firm bounce in price, given around half the companies in Singapore have price-to-earnings ratios (or "P/E's") below 11x, you may consider RH PetroGas as a stock to potentially avoid with its 16.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

RH PetroGas hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

See our latest analysis for RH PetroGas

Keen to find out how analysts think RH PetroGas' future stacks up against the industry? In that case, our free report is a great place to start.

How Is RH PetroGas' Growth Trending?

RH PetroGas' P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 25%. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 7.5% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to slump, contracting by 16% each year during the coming three years according to the sole analyst following the company. With the market predicted to deliver 9.9% growth per annum, that's a disappointing outcome.

With this information, we find it concerning that RH PetroGas is trading at a P/E higher than the market. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as these declining earnings are likely to weigh heavily on the share price eventually.

The Bottom Line On RH PetroGas' P/E

RH PetroGas' P/E is getting right up there since its shares have risen strongly. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that RH PetroGas currently trades on a much higher than expected P/E for a company whose earnings are forecast to decline. When we see a poor outlook with earnings heading backwards, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

We don't want to rain on the parade too much, but we did also find 4 warning signs for RH PetroGas (1 is a bit unpleasant!) that you need to be mindful of.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.