SKM Egg Products Export (India) Limited's (NSE:SKMEGGPROD) Shares Leap 27% Yet They're Still Not Telling The Full Story

Despite an already strong run, SKM Egg Products Export (India) Limited (NSE:SKMEGGPROD) shares have been powering on, with a gain of 27% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 35% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think SKM Egg Products Export (India)'s price-to-earnings (or "P/E") ratio of 25.2x is worth a mention when the median P/E in India is similar at about 27x. 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.

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For example, consider that SKM Egg Products Export (India)'s financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on SKM Egg Products Export (India)'s earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The P/E?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 38%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 259% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's noticeably more attractive on an annualised basis.

With this information, we find it interesting that SKM Egg Products Export (India) is trading at a fairly similar P/E to the market. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Its shares have lifted substantially and now SKM Egg Products Export (India)'s P/E is also back up to the market median. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of SKM Egg Products Export (India) revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears some 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 2 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.