Even With A 27% Surge, Cautious Investors Are Not Rewarding Century Extrusions Limited's (NSE:CENTEXT) Performance Completely

Century Extrusions Limited (NSE:CENTEXT) shares have continued their recent momentum with a 27% gain in the last month alone. The annual gain comes to 185% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, it's still not a stretch to say that Century Extrusions' price-to-earnings (or "P/E") ratio of 32.3x right now seems quite "middle-of-the-road" compared to the market in India, where the median P/E ratio is around 32x. 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, Century Extrusions' receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Century Extrusions

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

How Is Century Extrusions' Growth Trending?

The only time you'd be comfortable seeing a P/E like Century Extrusions' is when the company's growth is tracking the market closely.

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 12%. Even so, admirably EPS has lifted 946% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

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

With this information, we find it interesting that Century Extrusions 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 Bottom Line On Century Extrusions' P/E

Century Extrusions' stock has a lot of momentum behind it lately, which has brought its P/E level with the market. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Century Extrusions currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. 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 3 warning signs for Century Extrusions (1 is a bit concerning!) that you need to take into consideration.

You might be able to find a better investment than Century Extrusions. 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.