The Market Lifts Premier Polyfilm Ltd. (NSE:PREMIERPOL) Shares 26% But It Can Do More

Premier Polyfilm Ltd. (NSE:PREMIERPOL) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The annual gain comes to 156% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, Premier Polyfilm may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 25.8x, since almost half of all companies in India have P/E ratios greater than 35x and even P/E's higher than 65x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for Premier Polyfilm as its earnings have been rising very briskly. 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 that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out 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.

Does Growth Match The Low P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 52%. The strong recent performance means it was also able to grow EPS by 105% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

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

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

Premier Polyfilm's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

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. When we see average earnings with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Premier Polyfilm that you need to be mindful of.

You might be able to find a better investment than Premier Polyfilm. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.