Investors Appear Satisfied With IFB Industries Limited's (NSE:IFBIND) Prospects As Shares Rocket 29%

IFB Industries Limited (NSE:IFBIND) shares have continued their recent momentum with a 29% gain in the last month alone. Unfortunately, despite the strong performance over the last month, the full year gain of 4.4% isn't as attractive.

Following the firm bounce in price, IFB Industries may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 54.9x, since almost half of all companies in India have P/E ratios under 29x and even P/E's lower than 16x 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 so lofty.

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IFB Industries certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for IFB Industries

Keen to find out how analysts think IFB Industries' future stacks up against the industry? In that case, our free report is a great place to start.

How Is IFB Industries' Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 136%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to climb by 38% each year during the coming three years according to the two analysts following the company. With the market only predicted to deliver 22% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that IFB Industries' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From IFB Industries' P/E?

Shares in IFB Industries have built up some good momentum lately, which has really inflated its P/E. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that IFB Industries maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for IFB Industries with six simple checks will allow you to discover any risks that could be an issue.

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.