Linde India Limited's (NSE:LINDEINDIA) Shares Leap 31% Yet They're Still Not Telling The Full Story

The Linde India Limited (NSE:LINDEINDIA) share price has done very well over the last month, posting an excellent gain of 31%. Looking back a bit further, it's encouraging to see the stock is up 66% in the last year.

Although its price has surged higher, Linde India's price-to-earnings (or "P/E") ratio of 13.7x might still make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 19x and even P/E's above 42x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Linde India certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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 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.

See our latest analysis for Linde India

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 Linde India's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Linde India would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 32% last year. The strong recent performance means it was also able to grow EPS by 4,402% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 27% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Linde India's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Despite Linde India's shares building up a head of steam, its P/E still lags most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Linde India currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings 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 if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

It is also worth noting that we have found 2 warning signs for Linde India that you need to take into consideration.

If you're unsure about the strength of Linde India's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. 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.
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