Even With A 30% Surge, Cautious Investors Are Not Rewarding SKM Egg Products Export (India) Limited's (NSE:SKMEGGPROD) Performance Completely

Those holding SKM Egg Products Export (India) Limited (NSE:SKMEGGPROD) shares would be relieved that the share price has rebounded 30% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The last month tops off a massive increase of 108% in the last year.

Even after such a large jump in price, SKM Egg Products Export (India)'s price-to-earnings (or "P/E") ratio of 7.9x might still make it look like a strong buy right now compared to the market in India, where around half of the companies have P/E ratios above 31x and even P/E's above 57x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's exceedingly strong of late, SKM Egg Products Export (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 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.

See our latest analysis for SKM Egg Products Export (India)

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

Does Growth Match The Low P/E?

In order to justify its P/E ratio, SKM Egg Products Export (India) would need to produce anemic growth that's substantially trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 125% last year. The strong recent performance means it was also able to grow EPS by 639% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 24% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that SKM Egg Products Export (India) is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Even after such a strong price move, SKM Egg Products Export (India)'s P/E still trails the rest of the market significantly. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of SKM Egg Products Export (India) revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. 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.

Plus, you should also learn about these 3 warning signs we've spotted with SKM Egg Products Export (India).

You might be able to find a better investment than SKM Egg Products Export (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.