Srivari Spices and Foods Limited's (NSE:SSFL) 27% Jump Shows Its Popularity With Investors

Despite an already strong run, Srivari Spices and Foods Limited (NSE:SSFL) shares have been powering on, with a gain of 27% in the last thirty days. The annual gain comes to 195% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, Srivari Spices and Foods may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 36.9x, since almost half of all companies in India have P/E ratios under 33x and even P/E's lower than 19x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

With earnings growth that's exceedingly strong of late, Srivari Spices and Foods has been doing very well. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Srivari Spices and Foods

Although there are no analyst estimates available for Srivari Spices and 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 Enough Growth For Srivari Spices and Foods?

There's an inherent assumption that a company should outperform the market for P/E ratios like Srivari Spices and Foods' to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 58% last year. The strong recent performance means it was also able to grow EPS by 427% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 26% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Srivari Spices and Foods' P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What We Can Learn From Srivari Spices and Foods' P/E?

Srivari Spices and Foods' P/E is getting right up there since its shares have risen strongly. 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 Srivari Spices and Foods maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Srivari Spices and Foods (2 are significant) you should be aware of.

You might be able to find a better investment than Srivari Spices and Foods. 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.