Investors Still Aren't Entirely Convinced By Agarwal Float Glass India Limited's (NSE:AGARWALFT) Earnings Despite 33% Price Jump

Agarwal Float Glass India Limited (NSE:AGARWALFT) shares have had a really impressive month, gaining 33% after a shaky period beforehand. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Although its price has surged higher, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 28x, you may still consider Agarwal Float Glass India as a highly attractive investment with its 13.3x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Agarwal Float Glass India certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform 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 out of favour.

See our latest analysis for Agarwal Float Glass India

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

How Is Agarwal Float Glass India's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 341%. The latest three year period has also seen an excellent 1,870% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is only predicted to deliver 26% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's peculiar that Agarwal Float Glass India's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Agarwal Float Glass India's P/E

Even after such a strong price move, Agarwal Float Glass India's P/E still trails the rest of the market significantly. 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.

We've established that Agarwal Float Glass India currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 4 warning signs for Agarwal Float Glass India you should be aware of, and 3 of them are potentially serious.

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 low P/E.

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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.