(NSE:ROML) shareholders have had their patience rewarded with a 34% share price jump in the last month. Looking further back, the 18% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Since its price has surged higher, given around half the companies in India have price-to-earnings ratios (or "P/E's") below 29x, you may consider Raj Oil Mills as a stock to potentially avoid with its 34.8x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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Raj Oil Mills certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Raj Oil Mills

Although there are no analyst estimates available for Raj Oil Mills, take a look at this data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

If we review the last year of earnings growth, the company posted a terrific increase of 58%. 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.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 23% shows it's noticeably less attractive on an annualised basis.

With this information, we find it concerning that Raj Oil Mills is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The large bounce in Raj Oil Mills' shares has lifted the company's P/E to a fairly high level. 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 Raj Oil Mills currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

There are also other vital risk factors to consider and we've discovered (3 are significant!) that you should be aware of before investing here.

It's important to So take a peek at this list of interesting companies with strong recent earnings growth (and a low P/E).