Market Participants Recognise Cantabil Retail India Limited's (NSE:CANTABIL) Earnings Pushing Shares 27% Higher

Cantabil Retail India Limited (NSE:CANTABIL) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 8.6% isn't as impressive.

Following the firm bounce in price, Cantabil Retail India may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 38x, since almost half of all companies in India have P/E ratios under 33x and even P/E's lower than 19x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

For example, consider that Cantabil Retail India's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

See our latest analysis for Cantabil Retail India

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

How Is Cantabil Retail India's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Cantabil Retail India's is when the company's growth is on track to outshine the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 6.3%. Still, the latest three year period has seen an excellent 150% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

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 Cantabil Retail India's 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.

What We Can Learn From Cantabil Retail India's P/E?

The large bounce in Cantabil Retail India's shares has lifted the company's P/E to a fairly high level. 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 Cantabil Retail India maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. 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 always need to take note of risks, for example - Cantabil Retail India has 2 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on Cantabil Retail India, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.