Positive Sentiment Still Eludes Pearl Global Industries Limited (NSE:PGIL) Following 28% Share Price Slump

Pearl Global Industries Limited (NSE:PGIL) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. Still, a bad month hasn't completely ruined the past year with the stock gaining 80%, which is great even in a bull market.

In spite of the heavy fall in price, Pearl Global Industries' price-to-earnings (or "P/E") ratio of 21x 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 26x and even P/E's above 49x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Pearl Global Industries certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong 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.

See our latest analysis for Pearl Global Industries

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Is There Any Growth For Pearl Global Industries?

In order to justify its P/E ratio, Pearl Global Industries would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 25% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 289% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 27% per annum as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 19% per annum growth forecast for the broader market.

With this information, we find it odd that Pearl Global Industries is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Pearl Global Industries' P/E?

Pearl Global Industries' P/E has taken a tumble along with its share price. 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.

We've established that Pearl Global Industries currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Pearl Global Industries (1 is concerning!) that you need to be mindful of.

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.