Getting In Cheap On Gallantt Ispat Limited (NSE:GALLANTT) Is Unlikely

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 27x, you may consider Gallantt Ispat Limited (NSE:GALLANTT) as a stock to potentially avoid with its 32.1x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

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With earnings growth that's exceedingly strong of late, Gallantt Ispat has been doing very well. The P/E is probably high because investors think this strong earnings growth will be 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 Gallantt Ispat

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

Is There Enough Growth For Gallantt Ispat?

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

Retrospectively, the last year delivered an exceptional 54% gain to the company's bottom line. The latest three year period has also seen an excellent 79% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those 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 less attractive on an annualised basis.

With this information, we find it concerning that Gallantt Ispat is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Key Takeaway

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Gallantt Ispat revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Gallantt Ispat you should know about.

Of course, you might also be able to find a better stock than Gallantt Ispat. 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.