Investors Holding Back On Goodluck India Limited (NSE:GOODLUCK)

It's not a stretch to say that Goodluck India Limited's (NSE:GOODLUCK) price-to-earnings (or "P/E") ratio of 28.5x right now seems quite "middle-of-the-road" compared to the market in India, where the median P/E ratio is around 31x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Goodluck India has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

See our latest analysis for Goodluck India

Although there are no analyst estimates available for Goodluck India, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Goodluck India's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 23% last year. The latest three year period has also seen an excellent 200% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

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.

In light of this, it's curious that Goodluck India's P/E sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Goodluck India 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.

Having said that, be aware Goodluck India is showing 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.