The Market Lifts Pearl Global Industries Limited (NSE:PGIL) Shares 27% But It Can Do More

Pearl Global Industries Limited (NSE:PGIL) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 86% in the last year.

Even after such a large jump in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 31x, you may still consider Pearl Global Industries as an attractive investment with its 25.1x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times haven't been advantageous for Pearl Global Industries as its earnings have been rising slower than most other companies. It seems that many are expecting the uninspiring earnings performance to persist, which has repressed the P/E. If you still like the company, you'd be hoping earnings don't get any worse and that you could pick up some stock while it's out of favour.

View our latest analysis for Pearl Global Industries

Want the full picture on analyst estimates for the company? Then our free report on Pearl Global Industries will help you uncover what's on the horizon.

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.

Taking a look back first, we see that the company grew earnings per share by an impressive 16% last year. The latest three year period has also seen an excellent 294% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 29% per year during the coming three years according to the sole analyst following the company. With the market only predicted to deliver 19% each year, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Pearl Global Industries' P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

The latest share price surge wasn't enough to lift Pearl Global Industries' P/E close to the market median. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Pearl Global Industries' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Pearl Global Industries (of which 1 can't be ignored!) you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.