Optimistic Investors Push Gabriel India Limited (NSE:GABRIEL) Shares Up 27% But Growth Is Lacking

Despite an already strong run, Gabriel India Limited (NSE:GABRIEL) shares have been powering on, with a gain of 27% in the last thirty days. The last month tops off a massive increase of 153% in the last year.

Since its price has surged higher, Gabriel India's price-to-earnings (or "P/E") ratio of 38.9x might make it look like a sell right now compared to the market in India, where around half of the companies have P/E ratios below 32x and even P/E's below 18x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

With earnings growth that's superior to most other companies of late, Gabriel India has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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?

Gabriel India's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 35%. The latest three year period has also seen an excellent 197% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 27% during the coming year according to the seven analysts following the company. Meanwhile, the rest of the market is forecast to expand by 25%, which is not materially different.

With this information, we find it interesting that Gabriel India is trading at a high P/E compared to the market. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From Gabriel India's P/E?

Gabriel India's P/E is getting right up there since its shares have risen strongly. 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.

Our examination of Gabriel India's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Gabriel India (at least 1 which can't be ignored), and understanding them should be part of your investment process.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com