Globe Textiles (India) Limited (NSE:GLOBE) Surges 29% Yet Its Low P/E Is No Reason For Excitement

Despite an already strong run, Globe Textiles (India) Limited (NSE:GLOBE) shares have been powering on, with a gain of 29% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 20% is also fairly reasonable.

Even after such a large jump in price, Globe Textiles (India)'s price-to-earnings (or "P/E") ratio of 28.5x might still make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 35x and even P/E's above 66x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Earnings have risen firmly for Globe Textiles (India) recently, which is pleasing to see. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Globe Textiles (India)

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

Is There Any Growth For Globe Textiles (India)?

In order to justify its P/E ratio, Globe Textiles (India) would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 11% last year. The latest three year period has also seen an excellent 60% overall rise in EPS, aided somewhat by its short-term performance. 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 26% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Globe Textiles (India) is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From Globe Textiles (India)'s P/E?

Globe Textiles (India)'s stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

We've established that Globe Textiles (India) maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You need to take note of risks, for example - Globe Textiles (India) has 4 warning signs (and 2 which are a bit unpleasant) we think you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.