Hoac Foods India Limited's (NSE:HOACFOODS) P/E Is Still On The Mark Following 25% Share Price Bounce

Despite an already strong run, Hoac Foods India Limited (NSE:HOACFOODS) shares have been powering on, with a gain of 25% in the last thirty days. The last month tops off a massive increase of 136% in the last year.

After such a large jump in price, Hoac Foods India's price-to-earnings (or "P/E") ratio of 47.5x might make it look like a strong sell right now compared to the market in India, where around half of the companies have P/E ratios below 27x and even P/E's below 15x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

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Hoac Foods India certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. 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.

How Is Hoac Foods India's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 75% last year. The latest three year period has also seen an excellent 182% 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 25% 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. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

What We Can Learn From Hoac Foods India's P/E?

Hoac Foods India's P/E is flying high just like its stock has during the last month. 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.

As we suspected, our examination of Hoac Foods India revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Hoac Foods India is showing 4 warning signs in our investment analysis, and 1 of those is significant.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.