Slammed 26% Gokul Agro Resources Limited (NSE:GOKULAGRO) Screens Well Here But There Might Be A Catch

Unfortunately for some shareholders, the Gokul Agro Resources Limited (NSE:GOKULAGRO) share price has dived 26% in the last thirty days, prolonging recent pain. The good news is that in the last year, the stock has shone bright like a diamond, gaining 112%.

Following the heavy fall in price, Gokul Agro Resources may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 13.8x, since almost half of all companies in India have P/E ratios greater than 26x and even P/E's higher than 50x 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.

Gokul Agro Resources certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Gokul Agro Resources

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 Gokul Agro Resources' earnings, revenue and cash flow.

Is There Any Growth For Gokul Agro Resources?

In order to justify its P/E ratio, Gokul Agro Resources would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 87% gain to the company's bottom line. Pleasingly, EPS has also lifted 173% 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.

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 find it odd that Gokul Agro Resources is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Gokul Agro Resources' P/E

Gokul Agro Resources' P/E has taken a tumble along with its share price. 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.

We've established that Gokul Agro Resources currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings 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 if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Gokul Agro Resources with six simple checks.

Of course, you might also be able to find a better stock than Gokul Agro Resources. 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.