Global Education Limited (NSE:GLOBAL) Shares Fly 27% But Investors Aren't Buying For Growth

Global Education Limited (NSE:GLOBAL) shareholders have had their patience rewarded with a 27% share price jump in the last month. Looking further back, the 14% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, Global Education may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 18.5x, since almost half of all companies in India have P/E ratios greater than 27x and even P/E's higher than 51x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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For instance, Global Education's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Global Education

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

How Is Global Education's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Global Education's is when the company's growth is on track to lag the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 32%. Still, the latest three year period has seen an excellent 39% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

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

In light of this, it's understandable that Global Education's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On Global Education's P/E

Global Education's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

As we suspected, our examination of Global Education revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Global Education that you should be aware of.

If these risks are making you reconsider your opinion on Global Education, 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.