Nagreeka Exports Limited (NSE:NAGREEKEXP) Shares Fly 30% But Investors Aren't Buying For Growth

Nagreeka Exports Limited (NSE:NAGREEKEXP) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 23% in the last twelve months.

In spite of the firm bounce in price, Nagreeka Exports may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 19.7x, since almost half of all companies in India have P/E ratios greater than 34x and even P/E's higher than 66x 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 limited.

With earnings growth that's exceedingly strong of late, Nagreeka Exports has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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.

See our latest analysis for Nagreeka Exports

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 Nagreeka Exports' earnings, revenue and cash flow.

How Is Nagreeka Exports' Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Nagreeka Exports' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 35% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing that to the market, which is predicted to deliver 25% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Nagreeka Exports 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.

The Final Word

Nagreeka Exports' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

As we suspected, our examination of Nagreeka Exports revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. 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.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Nagreeka Exports (2 make us uncomfortable!) that you should be aware of before investing here.

Of course, you might also be able to find a better stock than Nagreeka Exports. 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.

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