Further Upside For Cantabil Retail India Limited (NSE:CANTABIL) Shares Could Introduce Price Risks After 26% Bounce

The Cantabil Retail India Limited (NSE:CANTABIL) share price has done very well over the last month, posting an excellent gain of 26%. Looking back a bit further, it's encouraging to see the stock is up 28% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Cantabil Retail India's price-to-earnings (or "P/E") ratio of 35.9x is worth a mention when the median P/E in India is similar at about 33x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

For instance, Cantabil Retail India's receding earnings in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for Cantabil Retail India

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 Cantabil Retail India's earnings, revenue and cash flow.

How Is Cantabil Retail India's Growth Trending?

In order to justify its P/E ratio, Cantabil Retail India would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a frustrating 7.7% decrease to the company's bottom line. Even so, admirably EPS has lifted 528% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate 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.

With this information, we find it interesting that Cantabil Retail India is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On Cantabil Retail India's P/E

Its shares have lifted substantially and now Cantabil Retail India's P/E is also back up to the market median. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Cantabil Retail India revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

It is also worth noting that we have found 2 warning signs for Cantabil Retail India that you need to take into consideration.

Of course, you might also be able to find a better stock than Cantabil Retail India. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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