Investors Still Aren't Entirely Convinced About Vidhi Specialty Food Ingredients Limited's (NSE:VIDHIING) Earnings Despite 27% Price Jump

Despite an already strong run, Vidhi Specialty Food Ingredients Limited (NSE:VIDHIING) shares have been powering on, with a gain of 27% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 75% in the last year.

Even after such a large jump in price, there still wouldn't be many who think Vidhi Specialty Food Ingredients' price-to-earnings (or "P/E") ratio of 16.9x is worth a mention when the median P/E in India is similar at about 16x. 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.

Vidhi Specialty Food Ingredients has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is moderate because investors think this respectable earnings growth might not be enough to outperform the broader market in the near future. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Check out our latest analysis for Vidhi Specialty Food Ingredients

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Vidhi Specialty Food Ingredients will help you shine a light on its historical performance.

How Is Vidhi Specialty Food Ingredients' Growth Trending?

In order to justify its P/E ratio, Vidhi Specialty Food Ingredients would need to produce growth that's similar to the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 13% last year. The latest three year period has also seen an excellent 128% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 12% shows it's noticeably more attractive on an annualised basis.

With this information, we find it interesting that Vidhi Specialty Food Ingredients is trading at a fairly similar P/E to the market. It may be that most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Vidhi Specialty Food Ingredients' P/E?

Vidhi Specialty Food Ingredients' stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 Vidhi Specialty Food Ingredients currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Vidhi Specialty Food Ingredients you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.

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