Godfrey Phillips India Limited (NSE:GODFRYPHLP) Surges 26% Yet Its Low P/E Is No Reason For Excitement

Godfrey Phillips India Limited (NSE:GODFRYPHLP) shares have continued their recent momentum with a 26% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 60% in the last year.

In spite of the firm bounce in price, Godfrey Phillips India may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 17.6x, since almost half of all companies in India have P/E ratios greater than 32x and even P/E's higher than 59x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With earnings growth that's superior to most other companies of late, Godfrey Phillips India has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Godfrey Phillips India

Keen to find out how analysts think Godfrey Phillips India's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Godfrey Phillips India?

The only time you'd be truly comfortable seeing a P/E as low as Godfrey Phillips India's 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 26% last year. The latest three year period has also seen an excellent 155% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 22% during the coming year according to the one analyst following the company. Meanwhile, the rest of the market is forecast to expand by 25%, which is noticeably more attractive.

With this information, we can see why Godfrey Phillips India is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Godfrey Phillips India's P/E

The latest share price surge wasn't enough to lift Godfrey Phillips India's P/E close to the market median. 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.

As we suspected, our examination of Godfrey Phillips India's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Godfrey Phillips India with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might also be able to find a better stock than Godfrey Phillips India. 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.