A Piece Of The Puzzle Missing From Pudumjee Paper Products Limited's (NSE:PDMJEPAPER) 62% Share Price Climb

Pudumjee Paper Products Limited (NSE:PDMJEPAPER) shares have continued their recent momentum with a 62% gain in the last month alone. The last 30 days were the cherry on top of the stock's 327% gain in the last year, which is nothing short of spectacular.

In spite of the firm bounce in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 33x, you may still consider Pudumjee Paper Products as a highly attractive investment with its 16.1x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for Pudumjee Paper Products as its earnings have been rising very briskly. 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.

View our latest analysis for Pudumjee Paper Products

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Pudumjee Paper Products will help you shine a light on its historical performance.

Is There Any Growth For Pudumjee Paper Products?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Pudumjee Paper Products' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 142%. The latest three year period has also seen an excellent 189% overall rise in EPS, aided by its short-term performance. 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 26% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that Pudumjee Paper Products' P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Pudumjee Paper Products' P/E

Even after such a strong price move, Pudumjee Paper Products' P/E still trails the rest of the market significantly. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Pudumjee Paper Products currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. 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.

Before you take the next step, you should know about the 1 warning sign for Pudumjee Paper Products that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.