Gulf Oil Lubricants India Limited's (NSE:GULFOILLUB) Shares Bounce 26% But Its Business Still Trails The Market

Despite an already strong run, Gulf Oil Lubricants India Limited (NSE:GULFOILLUB) shares have been powering on, with a gain of 26% in the last thirty days. The last month tops off a massive increase of 152% in the last year.

Although its price has surged higher, Gulf Oil Lubricants India may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 21.7x, since almost half of all companies in India have P/E ratios greater than 35x and even P/E's higher than 64x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Gulf Oil Lubricants India certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Gulf Oil Lubricants India

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Is There Any Growth For Gulf Oil Lubricants India?

Gulf Oil Lubricants India's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 33%. The latest three year period has also seen an excellent 56% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 10% each year during the coming three years according to the three analysts following the company. That's shaping up to be materially lower than the 20% per annum growth forecast for the broader market.

In light of this, it's understandable that Gulf Oil Lubricants India's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Gulf Oil Lubricants India's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Gulf Oil Lubricants India's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 1 warning sign for Gulf Oil Lubricants India that you should be aware of.

If these risks are making you reconsider your opinion on Gulf Oil Lubricants India, 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.