Godfrey Phillips India Limited (NSE:GODFRYPHLP) Stocks Shoot Up 34% But Its P/E Still Looks Reasonable

Those holding Godfrey Phillips India Limited (NSE:GODFRYPHLP) shares would be relieved that the share price has rebounded 34% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The annual gain comes to 136% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given around half the companies in India have price-to-earnings ratios (or "P/E's") below 26x, you may consider Godfrey Phillips India as a stock to potentially avoid with its 30.9x 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.

With earnings growth that's superior to most other companies of late, Godfrey Phillips India has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Godfrey Phillips India

Want the full picture on analyst estimates for the company? Then our free report on Godfrey Phillips India will help you uncover what's on the horizon.

How Is Godfrey Phillips India's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Godfrey Phillips India's is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a terrific increase of 24%. Pleasingly, EPS has also lifted 134% 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 40% as estimated by the sole analyst watching the company. With the market only predicted to deliver 26%, the company is positioned for a stronger earnings result.

With this information, we can see why Godfrey Phillips India is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Godfrey Phillips India's P/E is getting right up there since its shares have risen strongly. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Godfrey Phillips India's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Godfrey Phillips India (1 makes us a bit uncomfortable!) that you need to be mindful of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.