A Piece Of The Puzzle Missing From Foods and Inns Limited's (NSE:FOODSIN) 34% Share Price Climb

Foods and Inns Limited (NSE:FOODSIN) shareholders would be excited to see that the share price has had a great month, posting a 34% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 27% in the last year.

In spite of the firm bounce in price, Foods and Inns may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 21.4x, since almost half of all companies in India have P/E ratios greater than 31x and even P/E's higher than 58x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings growth that's superior to most other companies of late, Foods and Inns has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Foods and Inns

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Foods and Inns.

Does Growth Match The Low P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 27% last year. Pleasingly, EPS has also lifted 1,681% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 65% as estimated by the lone analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 24%, which is noticeably less attractive.

In light of this, it's peculiar that Foods and Inns' P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

Despite Foods and Inns' shares building up a head of steam, its P/E still lags most other companies. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Foods and Inns' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

It is also worth noting that we have found 2 warning signs for Foods and Inns (1 is a bit concerning!) that you need to take into consideration.

Of course, you might also be able to find a better stock than Foods and Inns. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.