A Piece Of The Puzzle Missing From IFGL Refractories Limited's (NSE:IFGLEXPOR) 26% Share Price Climb

IFGL Refractories Limited (NSE:IFGLEXPOR) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. The last month tops off a massive increase of 201% in the last year.

Although its price has surged higher, IFGL Refractories may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 25.1x, since almost half of all companies in India have P/E ratios greater than 32x and even P/E's higher than 59x 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.

With earnings growth that's superior to most other companies of late, IFGL Refractories has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 out of favour.

Check out our latest analysis for IFGL Refractories

If you'd like to see what analysts are forecasting going forward, you should check out our free report on IFGL Refractories.

Is There Any Growth For IFGL Refractories?

The only time you'd be truly comfortable seeing a P/E as low as IFGL Refractories' is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 40% last year. Pleasingly, EPS has also lifted 82% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 39% as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 24% growth forecast for the broader market.

With this information, we find it odd that IFGL Refractories is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

The latest share price surge wasn't enough to lift IFGL Refractories' P/E close to the market median. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of IFGL Refractories' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 2 warning signs for IFGL Refractories you should be aware of.

If these risks are making you reconsider your opinion on IFGL Refractories, 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.