Slammed 27% Archidply Industries Limited (NSE:ARCHIDPLY) Screens Well Here But There Might Be A Catch

Archidply Industries Limited (NSE:ARCHIDPLY) shares have retraced a considerable 27% in the last month, reversing a fair amount of their solid recent performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 55%, which is great even in a bull market.

Even after such a large drop in price, there still wouldn't be many who think Archidply Industries' price-to-earnings (or "P/E") ratio of 29x is worth a mention when the median P/E in India is similar at about 31x. 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.

For instance, Archidply Industries' receding earnings in recent times would have to be some food for thought. 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.

Check out 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.

How Is Archidply Industries' Growth Trending?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 42%. Still, the latest three year period has seen an excellent 248% overall rise in EPS, in spite of its unsatisfying short-term performance. 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 Archidply Industries 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

With its share price falling into a hole, the P/E for Archidply Industries looks quite average now. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Archidply Industries currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

It is also worth noting that we have found 5 warning signs for Archidply Industries (3 can't be ignored!) that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.