Not Many Are Piling Into Garware Hi-Tech Films Limited (NSE:GRWRHITECH) Stock Yet As It Plummets 35%

To the annoyance of some shareholders, Garware Hi-Tech Films Limited (NSE:GRWRHITECH) shares are down a considerable 35% in the last month, which continues a horrid run for the company. Looking at the bigger picture, even after this poor month the stock is up 49% in the last year.

Although its price has dipped substantially, Garware Hi-Tech Films may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 20.2x, since almost half of all companies in India have P/E ratios greater than 26x and even P/E's higher than 50x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's exceedingly strong of late, Garware Hi-Tech Films has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Garware Hi-Tech Films

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

Is There Any Growth For Garware Hi-Tech Films?

There's an inherent assumption that a company should underperform the market for P/E ratios like Garware Hi-Tech Films' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 65% gain to the company's bottom line. The latest three year period has also seen an excellent 102% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

It's interesting to note that the rest of the market is similarly expected to grow by 25% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Garware Hi-Tech Films' P/E sits below the majority of other companies. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

The Final Word

Garware Hi-Tech Films' P/E has taken a tumble along with its share price. 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 similar to current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Garware Hi-Tech Films , and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on Garware Hi-Tech Films, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.