The Market Lifts Pennar Industries Limited (NSE:PENIND) Shares 31% But It Can Do More

Pennar Industries Limited (NSE:PENIND) shareholders have had their patience rewarded with a 31% share price jump in the last month. The last month tops off a massive increase of 122% in the last year.

In spite of the firm bounce in price, Pennar Industries' price-to-earnings (or "P/E") ratio of 23.2x 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 30x and even P/E's above 60x are quite common. 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, Pennar Industries 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Pennar Industries

Keen to find out how analysts think Pennar Industries' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Pennar Industries' Growth Trending?

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

Retrospectively, the last year delivered an exceptional 33% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 3,985% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 28% during the coming year according to the one analyst following the company. Meanwhile, the rest of the market is forecast to expand by 25%, which is not materially different.

In light of this, it's peculiar that Pennar Industries' P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

What We Can Learn From Pennar Industries' P/E?

The latest share price surge wasn't enough to lift Pennar Industries' P/E close to the market median. 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.

Our examination of Pennar Industries' analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

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

If you're unsure about the strength of Pennar Industries' 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. 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.