Hoac Foods India Limited (NSE:HOACFOODS) Looks Just Right With A 26% Price Jump

Despite an already strong run, Hoac Foods India Limited (NSE:HOACFOODS) shares have been powering on, with a gain of 26% in the last thirty days. Looking further back, the 13% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Since its price has surged higher, Hoac Foods India may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 34.3x, since almost half of all companies in India have P/E ratios under 29x and even P/E's lower than 16x 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 as high as it is.

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With earnings growth that's exceedingly strong of late, Hoac Foods India has been doing very well. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Hoac Foods India

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

What Are Growth Metrics Telling Us About The High P/E?

Hoac Foods India's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered an exceptional 74% gain to the company's bottom line. The latest three year period has also seen an excellent 180% 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.

This is in contrast to the rest of the market, which is expected to grow by 23% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Hoac Foods India's P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Final Word

Hoac Foods India shares have received a push in the right direction, but its P/E is elevated too. 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 Hoac Foods India maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 3 warning signs for Hoac Foods India (2 are a bit unpleasant!) that you should be aware of.

You might be able to find a better investment than Hoac Foods India. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.