Earnings Not Telling The Story For Apeejay Surrendra Park Hotels Limited (NSE:PARKHOTELS) After Shares Rise 27%

Those holding Apeejay Surrendra Park Hotels Limited (NSE:PARKHOTELS) shares would be relieved that the share price has rebounded 27% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Following the firm bounce in price, Apeejay Surrendra Park Hotels may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 59.5x, since almost half of all companies in India have P/E ratios under 33x and even P/E's lower than 19x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Apeejay Surrendra Park Hotels certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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.

Check out our latest analysis for Apeejay Surrendra Park Hotels

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

What Are Growth Metrics Telling Us About The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as Apeejay Surrendra Park Hotels' is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 39% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's noticeably less attractive on an annualised basis.

With this information, we find it concerning that Apeejay Surrendra Park Hotels is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Apeejay Surrendra Park Hotels' P/E

Shares in Apeejay Surrendra Park Hotels have built up some good momentum lately, which has really inflated its P/E. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Apeejay Surrendra Park Hotels revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Apeejay Surrendra Park Hotels with six simple checks on some of these key factors.

If you're unsure about the strength of Apeejay Surrendra Park Hotels' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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