Investors Holding Back On Apex Frozen Foods Limited (NSE:APEX)

With a median price-to-earnings (or "P/E") ratio of close to 12x in India, you could be forgiven for feeling indifferent about Apex Frozen Foods Limited's (NSE:APEX) P/E ratio of 13.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

For instance, Apex Frozen Foods' receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for Apex Frozen Foods

Where Does Apex Frozen Foods' P/E Sit Within Its Industry?

We'd like to see if P/E's within Apex Frozen Foods' industry might provide some colour around the company's fairly average P/E ratio. The image below shows that the Food industry as a whole also has a P/E ratio similar to the market. So this certainly goes a fair way towards explaining the company's ratio right now. Ordinarily, the majority of companies' P/E's would be constrained by the general conditions within the Food industry. Ultimately though, it's going to be the fundamentals of the business like earnings and growth that count most.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Apex Frozen Foods will help you shine a light on its historical performance.

Does Growth Match The P/E?

In order to justify its P/E ratio, Apex Frozen Foods would need to produce growth that's similar to 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 17%. Even so, admirably EPS has lifted 83% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Weighing the recent medium-term upward earnings trajectory against the broader market's one-year forecast for contraction of 2.8% shows it's a great look while it lasts.

With this information, we find it odd that Apex Frozen Foods is trading at a fairly similar P/E to the market. It looks like most investors are not convinced the company can maintain its recent positive growth rate in the face of a shrinking broader market.

The Bottom Line On Apex Frozen Foods' P/E

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.

Our examination of Apex Frozen Foods revealed its growing earnings over the medium-term aren't contributing to its P/E as much as we would have predicted, given the market is set to shrink. When we see its superior earnings with some actual growth, we assume potential risks are what might be placing pressure on the P/E ratio. One major risk is whether its earnings trajectory can keep outperforming under these tough market conditions. It appears some are indeed anticipating earnings instability, because this relative performance should normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Apex Frozen Foods that you need to be mindful of.

If you're unsure about the strength of Apex Frozen Foods' 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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This article by Simply Wall St is general in nature. 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.
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