Abhishek Integrations Limited's (NSE:AILIMITED) 26% Jump Shows Its Popularity With Investors

Despite an already strong run, Abhishek Integrations Limited (NSE:AILIMITED) shares have been powering on, with a gain of 26% in the last thirty days. The annual gain comes to 163% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Abhishek Integrations' price-to-earnings (or "P/E") ratio of 54.4x might make it look like a strong 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. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's exceedingly strong of late, Abhishek Integrations has been doing very well. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Abhishek Integrations

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Abhishek Integrations' earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as Abhishek Integrations' is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 35% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 228% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Abhishek Integrations' P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On Abhishek Integrations' P/E

Shares in Abhishek Integrations have built up some good momentum lately, which has really inflated its P/E. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Abhishek Integrations revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 4 warning signs for Abhishek Integrations you should be aware of, and 2 of them are concerning.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.

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