Some Confidence Is Lacking In Archidply Industries Limited's (NSE:ARCHIDPLY) P/E

It's not a stretch to say that Archidply Industries Limited's (NSE:ARCHIDPLY) price-to-earnings (or "P/E") ratio of 14.6x right now seems quite "middle-of-the-road" compared to the market in India, where the median P/E ratio is around 13x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

For instance, Archidply Industries' receding earnings in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for Archidply Industries

Where Does Archidply Industries' P/E Sit Within Its Industry?

We'd like to see if P/E's within Archidply Industries' industry might provide some colour around the company's fairly average P/E ratio. You'll notice in the figure below that P/E ratios in the Forestry industry are lower than the market. So it appears the company's ratio isn't really influenced by these industry numbers currently. In the context of the Forestry industry's current setting, most of its constituents' P/E's would be expected to be toned down. However, what is happening on the company's own income statement is the most important factor to its P/E.

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

How Is Archidply Industries' Growth Trending?

Archidply 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, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 15%. As a result, earnings from three years ago have also fallen 44% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to decline by 6.7% over the next year, or less than the company's recent medium-term annualised earnings decline.

In light of this, it's somewhat peculiar that Archidply Industries' P/E sits in line with the majority of other companies. With earnings going quickly in reverse, it's not guaranteed that the P/E has found a floor yet. There's potential for the P/E to fall to lower levels if the company doesn't improve its profitability, which would be difficult to do with the current market outlook.

What We Can Learn From Archidply Industries' P/E?

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.

Our examination of Archidply Industries revealed its sharp three-year contraction in earnings isn't impacting its P/E as much as we would have predicted, given the market is set to shrink less severely. Right now we are uncomfortable with the P/E as this earnings performance isn't likely to support a more positive sentiment for long. We're also cautious about the company's ability to stay its recent medium-term course and resist even greater pain to its business from the broader market turmoil. This would place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Archidply Industries is showing 4 warning signs in our investment analysis, and 3 of those are significant.

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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