Skipper Limited's (NSE:SKIPPER) P/E Is Still On The Mark Following 27% Share Price Bounce

Despite an already strong run, Skipper Limited (NSE:SKIPPER) shares have been powering on, with a gain of 27% in the last thirty days. The annual gain comes to 118% following the latest surge, making investors sit up and take notice.

After such a large jump in price, given close to half the companies in India have price-to-earnings ratios (or "P/E's") below 32x, you may consider Skipper as a stock to avoid entirely with its 49.9x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Skipper certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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 Skipper

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Skipper will help you shine a light on its historical performance.

How Is Skipper's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 78% gain to the company's bottom line. Pleasingly, EPS has also lifted 285% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 26% shows it's noticeably more attractive on an annualised basis.

In light of this, it's understandable that Skipper's P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Final Word

Skipper's P/E is flying high just like its stock has during the last month. 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 Skipper revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Skipper is showing 3 warning signs in our investment analysis, and 1 of those is concerning.

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.