Garware Hi-Tech Films Limited (NSE:GRWRHITECH) Stock Rockets 27% But Many Are Still Ignoring The Company

Garware Hi-Tech Films Limited (NSE:GRWRHITECH) shares have had a really impressive month, gaining 27% after a shaky period beforehand. The last month tops off a massive increase of 156% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Garware Hi-Tech Films' P/E ratio of 29.5x, since the median price-to-earnings (or "P/E") ratio in India is also close to 28x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Garware Hi-Tech Films certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong 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.

View our latest analysis for Garware Hi-Tech Films

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 Garware Hi-Tech Films' earnings, revenue and cash flow.

How Is Garware Hi-Tech Films' Growth Trending?

The only time you'd be comfortable seeing a P/E like Garware Hi-Tech Films' is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 63% last year. Pleasingly, EPS has also lifted 98% in aggregate from three years ago, thanks to the last 12 months of growth. 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 23% shows it's noticeably more attractive on an annualised basis.

With this information, we find it interesting that Garware Hi-Tech Films is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Key Takeaway

Garware Hi-Tech Films 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.

Our examination of Garware Hi-Tech Films revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. 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.

Before you take the next step, you should know about the 1 warning sign for Garware Hi-Tech Films that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.