Getting In Cheap On Annapurna Swadisht Limited (NSE:ANNAPURNA) Might Be Difficult

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 34x, you may consider Annapurna Swadisht Limited (NSE:ANNAPURNA) as a stock to potentially avoid with its 42.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Annapurna Swadisht certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Annapurna Swadisht

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 Annapurna Swadisht's earnings, revenue and cash flow.

How Is Annapurna Swadisht's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Annapurna Swadisht's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 86% last year. The latest three year period has also seen an excellent 995% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Annapurna Swadisht is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Final Word

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 Annapurna Swadisht revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for Annapurna Swadisht (1 is a bit concerning!) that we have uncovered.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com