Sky Gold and Diamonds Limited's (NSE:SKYGOLD) Popularity With Investors Is Clear

Sky Gold and Diamonds Limited's (NSE:SKYGOLD) price-to-earnings (or "P/E") ratio of 45.6x might make it look like a strong sell right now compared to the market in India, where around half of the companies have P/E ratios below 26x and even P/E's below 15x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Our free stock report includes 1 warning sign investors should be aware of before investing in Sky Gold and Diamonds. Read for free now.

With earnings growth that's exceedingly strong of late, Sky Gold and Diamonds has been doing very well. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Sky Gold and Diamonds

Although there are no analyst estimates available for Sky Gold and Diamonds, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Sky Gold and Diamonds' Growth Trending?

Sky Gold and Diamonds' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered an exceptional 164% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 459% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 24% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Sky Gold and Diamonds' P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Key Takeaway

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.

We've established that Sky Gold and Diamonds maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Sky Gold and Diamonds that you should be aware of.

If these risks are making you reconsider your opinion on Sky Gold and Diamonds, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.