Further Upside For Premier Polyfilm Ltd. (NSE:PREMIERPOL) Shares Could Introduce Price Risks After 28% Bounce

Premier Polyfilm Ltd. (NSE:PREMIERPOL) shareholders have had their patience rewarded with a 28% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 67%.

Even after such a large jump in price, Premier Polyfilm's price-to-earnings (or "P/E") ratio of 24.8x 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 32x and even P/E's above 60x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Premier Polyfilm certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Premier Polyfilm

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 Premier Polyfilm's earnings, revenue and cash flow.

Is There Any Growth For Premier Polyfilm?

In order to justify its P/E ratio, Premier Polyfilm 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 43% last year. The strong recent performance means it was also able to grow EPS by 96% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 26% shows it's about the same on an annualised basis.

In light of this, it's peculiar that Premier Polyfilm'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.

The Final Word

The latest share price surge wasn't enough to lift Premier Polyfilm's P/E close to the market median. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Premier Polyfilm 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.

You should always think about risks. Case in point, we've spotted 3 warning signs for Premier Polyfilm you should be aware of, and 1 of them is a bit unpleasant.

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.