Gravita India Limited (NSE:GRAVITA) Stocks Shoot Up 27% But Its P/E Still Looks Reasonable

Gravita India Limited (NSE:GRAVITA) shares have continued their recent momentum with a 27% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 94%.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Gravita India's P/E ratio of 32.6x, since the median price-to-earnings (or "P/E") ratio in India is also close to 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.

Gravita India could be doing better as it's been growing earnings less than most other companies lately. One possibility is that the P/E is moderate because investors think this lacklustre earnings performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

See our latest analysis for Gravita India

Keen to find out how analysts think Gravita India's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Gravita India's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 17%. Pleasingly, EPS has also lifted 358% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 21% per annum over the next three years. With the market predicted to deliver 21% growth each year, the company is positioned for a comparable earnings result.

In light of this, it's understandable that Gravita India's P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

Gravita India appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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.

We've established that Gravita India maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you settle on your opinion, we've discovered 4 warning signs for Gravita India (2 are potentially serious!) that you should be aware of.

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.