Take Care Before Diving Into The Deep End On Vidhi Specialty Food Ingredients Limited (NSE:VIDHIING)

It's not a stretch to say that Vidhi Specialty Food Ingredients Limited's (NSE:VIDHIING) price-to-earnings (or "P/E") ratio of 14.1x right now seems quite "middle-of-the-road" compared to the market in India, where the median P/E ratio is around 16x. 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.

The earnings growth achieved at Vidhi Specialty Food Ingredients over the last year would be more than acceptable for most companies. 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Vidhi Specialty Food Ingredients

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

How Is Vidhi Specialty Food Ingredients' Growth Trending?

The only time you'd be comfortable seeing a P/E like Vidhi Specialty Food Ingredients' is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a worthy increase of 13%. This was backed up an excellent period prior to see EPS up by 128% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 11% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Vidhi Specialty Food Ingredients' P/E sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Key Takeaway

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

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. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Having said that, be aware Vidhi Specialty Food Ingredients is showing 3 warning signs in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than Vidhi Specialty Food Ingredients. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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This article by Simply Wall St is general in nature. 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.
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