Arrow Greentech Limited (NSE:ARROWGREEN) Stock Rockets 31% But Many Are Still Ignoring The Company

Arrow Greentech Limited (NSE:ARROWGREEN) shares have had a really impressive month, gaining 31% after a shaky period beforehand. The last month tops off a massive increase of 112% in the last year.

In spite of the firm bounce in price, Arrow Greentech may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 27.7x, since almost half of all companies in India have P/E ratios greater than 34x and even P/E's higher than 64x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings growth that's exceedingly strong of late, Arrow Greentech has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Arrow Greentech

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 Arrow Greentech's earnings, revenue and cash flow.

Is There Any Growth For Arrow Greentech?

In order to justify its P/E ratio, Arrow Greentech would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 73% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 578% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 26% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's peculiar that Arrow Greentech's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Arrow Greentech's P/E?

Arrow Greentech's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

Our examination of Arrow Greentech revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many 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 1 warning sign for Arrow Greentech that you should be aware of.

You might be able to find a better investment than Arrow Greentech. 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.