Editor’s Note
This analysis of Pearl Global Industries’ recent share price surge and its current P/E ratio highlights a stock that has delivered strong returns while still appearing reasonably valued relative to the broader Indian market. Investors should consider both the company’s recent momentum and its underlying valuation metrics.
Despite an already strong run, Pearl Global Industries Limited (NSE:PGIL) 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 75% in the last year.
In spite of the firm bounce in price, it’s still not a stretch to say that Pearl Global Industries’ price-to-earnings (or “P/E”) ratio of 29.3x right now seems quite “middle-of-the-road” compared to the market in India, where the median P/E ratio is around 27x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
Pearl Global Industries certainly has been doing a good job lately as it’s been growing earnings more than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
Pearl Global Industries’ P/E ratio would be typical for a company that’s only expected to deliver moderate growth, and importantly, perform in line with the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 23% last year. The strong recent performance means it was also able to grow EPS by 143% in total over the last three years. Therefore, it’s fair to say the earnings growth recently has been superb for the company.
Looking ahead now, EPS is anticipated to climb by 32% each year during the coming three years according to the sole analyst following the company. With the market only predicted to deliver 20% each year, the company is positioned for a stronger earnings result.
With this information, we find it interesting that Pearl Global Industries is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.
Pearl Global Industries’ stock has a lot of momentum behind it lately, which has brought its P/E level with the market. Typically, we’d caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We’ve established that Pearl Global Industries currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.
And what about other risks? Every company has them, and we’ve spotted 2 warning signs for Pearl Global Industries you should know about.