SKM Egg Products Export (India) Limited (NSE:SKMEGGPROD) Might Not Be As Mispriced As It Looks After Plunging 28%

SKM Egg Products Export (India) Limited (NSE:SKMEGGPROD) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. Still, a bad month hasn't completely ruined the past year with the stock gaining 45%, which is great even in a bull market.

Even after such a large drop in price, SKM Egg Products Export (India)'s price-to-earnings (or "P/E") ratio of 7.1x 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 32x and even P/E's above 59x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

SKM Egg Products Export (India) certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on SKM Egg Products Export (India) will help you shine a light on its historical performance.

How Is SKM Egg Products Export (India)'s Growth Trending?

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.

Retrospectively, the last year delivered an exceptional 125% gain to the company's bottom line. Pleasingly, EPS has also lifted 639% 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 only predicted to deliver 25% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

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 Final Word

SKM Egg Products Export (India)'s P/E looks about as weak as its stock price lately. 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.

We've established that SKM Egg Products Export (India) currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for SKM Egg Products Export (India) that you should be aware of.

If these risks are making you reconsider your opinion on SKM Egg Products Export (India), explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.