Optimistic Investors Push Sanghvi Movers Limited (NSE:SANGHVIMOV) Shares Up 27% But Growth Is Lacking

Despite an already strong run, Sanghvi Movers Limited (NSE:SANGHVIMOV) shares have been powering on, with a gain of 27% in the last thirty days. The annual gain comes to 289% following the latest surge, making investors sit up and take notice.

After such a large jump in price, given around half the companies in India have price-to-earnings ratios (or "P/E's") below 30x, you may consider Sanghvi Movers as a stock to potentially avoid with its 34x P/E ratio. 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, Sanghvi Movers 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 Sanghvi Movers

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Is There Enough Growth For Sanghvi Movers?

There's an inherent assumption that a company should outperform the market for P/E ratios like Sanghvi Movers' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 80%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the sole analyst covering the company suggest earnings should grow by 1.5% over the next year. Meanwhile, the rest of the market is forecast to expand by 24%, which is noticeably more attractive.

In light of this, it's alarming that Sanghvi Movers' P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Sanghvi Movers' P/E?

Sanghvi Movers' P/E is getting right up there since its shares have risen strongly. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Sanghvi Movers currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Sanghvi Movers, and understanding these should be part of your investment process.

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.