After Leaping 43% Archidply Industries Limited (NSE:ARCHIDPLY) Shares Are Not Flying Under The Radar

Archidply Industries Limited (NSE:ARCHIDPLY) shares have had a really impressive month, gaining 43% after a shaky period beforehand. The last month tops off a massive increase of 102% in the last year.

Following the firm bounce in price, given around half the companies in India have price-to-earnings ratios (or "P/E's") below 33x, you may consider Archidply Industries as a stock to potentially avoid with its 39.4x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

For instance, Archidply Industries' receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Archidply Industries

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Archidply Industries will help you shine a light on its historical performance.

Is There Enough Growth For Archidply Industries?

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

Retrospectively, the last year delivered a frustrating 42% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 248% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Archidply Industries' P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Bottom Line On Archidply Industries' P/E

Archidply Industries' P/E is getting right up there since its shares have risen strongly. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Archidply Industries revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. 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 5 warning signs for Archidply Industries (2 are a bit concerning) you should be aware of.

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.

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