Kohinoor Foods Limited's (NSE:KOHINOOR) Shares Climb 27% But Its Business Is Yet to Catch Up

The Kohinoor Foods Limited (NSE:KOHINOOR) share price has done very well over the last month, posting an excellent gain of 27%. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Even after such a large jump in price, there still wouldn't be many who think Kohinoor Foods' price-to-earnings (or "P/E") ratio of 22.7x is worth a mention when the median P/E in India is similar at about 23x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Recent times have been quite advantageous for Kohinoor Foods as its earnings have been rising very briskly. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. 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 not quite in favour.

View our latest analysis for Kohinoor Foods

Although there are no analyst estimates available for Kohinoor Foods, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Growth For Kohinoor Foods?

In order to justify its P/E ratio, Kohinoor Foods would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 89% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing that to the market, which is predicted to deliver 24% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we find it interesting that Kohinoor Foods is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

What We Can Learn From Kohinoor Foods' P/E?

Its shares have lifted substantially and now Kohinoor Foods' P/E is also back up to the market median. 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.

Our examination of Kohinoor Foods revealed its three-year earnings trends aren't impacting its P/E as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

There are also other vital risk factors to consider and we've discovered 5 warning signs for Kohinoor Foods (2 don't sit too well with us!) that you should be aware of before investing here.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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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.