Gabriel India Limited (NSE:GABRIEL) Screens Well But There Might Be A Catch

With a price-to-earnings (or "P/E") ratio of 26.6x Gabriel India Limited (NSE:GABRIEL) may be sending bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 30x and even P/E's higher than 56x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With earnings growth that's superior to most other companies of late, Gabriel India has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 out of favour.

See our latest analysis for Gabriel India

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

How Is Gabriel India's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Gabriel India's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 30% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 182% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 26% as estimated by the seven analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 24%, which is not materially different.

With this information, we find it odd that Gabriel India is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Key Takeaway

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Gabriel India's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like 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, but investors seem to think future earnings could see some volatility.

It is also worth noting that we have found 1 warning sign for Gabriel India that you need to take into consideration.

If you're unsure about the strength of Gabriel India's 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.