Investors Appear Satisfied With Exide Industries Limited's (NSE:EXIDEIND) Prospects As Shares Rocket 32%

Exide Industries Limited (NSE:EXIDEIND) shareholders would be excited to see that the share price has had a great month, posting a 32% gain and recovering from prior weakness. The annual gain comes to 115% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Exide Industries may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 38.8x, since almost half of all companies in India have P/E ratios under 31x and even P/E's lower than 17x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times haven't been advantageous for Exide Industries as its earnings have been rising slower than most other companies. It might be that many expect the uninspiring earnings performance to recover significantly, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

See our latest analysis for Exide Industries

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Exide Industries.

How Is Exide Industries' Growth Trending?

In order to justify its P/E ratio, Exide Industries would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a decent 11% gain to the company's bottom line. The solid recent performance means it was also able to grow EPS by 19% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 23% each year during the coming three years according to the analysts following the company. With the market only predicted to deliver 20% each year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Exide Industries' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Exide Industries' P/E is getting right up there since its shares have risen strongly. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Exide Industries maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Exide Industries is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Exide Industries' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.