Archidply Industries Limited (NSE:ARCHIDPLY) Surges 26% Yet Its Low P/E Is No Reason For Excitement

Despite an already strong run, Archidply Industries Limited (NSE:ARCHIDPLY) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days bring the annual gain to a very sharp 41%.

Although its price has surged higher, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 31x, you may still consider Archidply Industries as an attractive investment with its 19.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

For example, consider that Archidply Industries' financial performance has been poor lately as its earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for Archidply Industries

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 Archidply Industries' earnings, revenue and cash flow.

Is There Any Growth For Archidply Industries?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 21%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 25% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Archidply Industries is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On Archidply Industries' P/E

Despite Archidply Industries' shares building up a head of steam, its P/E still lags most other companies. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Archidply Industries maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 5 warning signs for Archidply Industries (2 are a bit unpleasant!) that you should be aware of.

Of course, you might also be able to find a better stock than Archidply Industries. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.