Investors Appear Satisfied With Gokaldas Exports Limited's (NSE:GOKEX) Prospects As Shares Rocket 27%

Gokaldas Exports Limited (NSE:GOKEX) shareholders have had their patience rewarded with a 27% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 87% in the last year.

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 34x, you may consider Gokaldas Exports as a stock to avoid entirely with its 52.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Gokaldas Exports could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Gokaldas Exports

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Does Growth Match The High P/E?

Gokaldas Exports' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 25%. Even so, admirably EPS has lifted 198% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 38% per year as estimated by the five analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 22% per year, which is noticeably less attractive.

In light of this, it's understandable that Gokaldas Exports' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Shares in Gokaldas Exports have built up some good momentum lately, which has really inflated its P/E. 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.

As we suspected, our examination of Gokaldas Exports' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Gokaldas Exports (1 is potentially serious) you should be aware of.

If these risks are making you reconsider your opinion on Gokaldas Exports, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com