Rossell India Limited (NSE:ROSSELLIND) Shares Fly 26% But Investors Aren't Buying For Growth

Those holding Rossell India Limited (NSE:ROSSELLIND) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 82% share price decline over the last year.

Although its price has surged higher, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 26x, you may still consider Rossell India as a highly attractive investment with its 7.6x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's exceedingly strong of late, Rossell India has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Rossell India

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

How Is Rossell India's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 167% gain to the company's bottom line. Pleasingly, EPS has also lifted 77% 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.

Comparing that to the market, which is predicted to deliver 25% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Rossell India is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

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

Even after such a strong price move, Rossell India's P/E still trails the rest of the market significantly. 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.

As we suspected, our examination of Rossell India revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 4 warning signs for Rossell India (1 is significant!) that we have uncovered.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.