Despite an already strong run, Dyna-Mac Holdings Ltd. (SGX:NO4) shares have been powering on, with a gain of 28% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 93% in the last year.

After such a large jump in price, Dyna-Mac Holdings' price-to-earnings (or "P/E") ratio of 15.2x might make it look like a sell right now compared to the market in Singapore, where around half of the companies have P/E ratios below 11x and even P/E's below 7x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Dyna-Mac Holdings as its earnings have risen in spite of the market's earnings going into reverse. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

What Are Growth Metrics Telling Us About The High P/E?

The only time you'd be truly comfortable seeing a P/E as high as Dyna-Mac Holdings' is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a terrific increase of 116%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 12% per year as estimated by the one analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 8.1% per year, which is noticeably less attractive.

With this information, we can see why Dyna-Mac Holdings is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Dyna-Mac Holdings' P/E

The large bounce in Dyna-Mac Holdings' shares has lifted the company's P/E to a fairly high level. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Dyna-Mac Holdings maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Dyna-Mac Holdings with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than Dyna-Mac Holdings. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.