A Piece Of The Puzzle Missing From Kewal Kiran Clothing Limited's (NSE:KKCL) 31% Share Price Climb

Kewal Kiran Clothing Limited (NSE:KKCL) shareholders have had their patience rewarded with a 31% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 20% in the last twelve months.

In spite of the firm bounce in price, Kewal Kiran Clothing may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 23.9x, since almost half of all companies in India have P/E ratios greater than 30x and even P/E's higher than 57x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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As an illustration, earnings have deteriorated at Kewal Kiran Clothing over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, 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 Kewal Kiran Clothing

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 Kewal Kiran Clothing's earnings, revenue and cash flow.

How Is Kewal Kiran Clothing's Growth Trending?

Kewal Kiran Clothing's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered a frustrating 6.2% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 83% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 23% shows it's about the same on an annualised basis.

In light of this, it's peculiar that Kewal Kiran Clothing's P/E sits below the majority of other companies. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

What We Can Learn From Kewal Kiran Clothing's P/E?

Kewal Kiran Clothing's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Kewal Kiran Clothing revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look similar to current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Kewal Kiran Clothing (including 1 which doesn't sit too well with us).

Of course, you might also be able to find a better stock than Kewal Kiran Clothing. 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.