Improved Earnings Required Before Prolife Industries Limited (NSE:PROLIFE) Stock's 27% Jump Looks Justified

Prolife Industries Limited (NSE:PROLIFE) shares have continued their recent momentum with a 27% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 35% in the last year.

Although its price has surged higher, Prolife Industries' price-to-earnings (or "P/E") ratio of 13.1x might still make it look like a strong buy right now compared to the market in India, where around half of the companies have P/E ratios above 35x and even P/E's above 65x 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 so limited.

Prolife Industries has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable 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.

See our latest analysis for Prolife Industries

Although there are no analyst estimates available for Prolife Industries, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Prolife Industries' Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 27%. The latest three year period has also seen an excellent 59% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 26% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Prolife Industries' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Final Word

Prolife Industries' recent share price jump still sees its P/E sitting firmly flat on the ground. 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 Prolife Industries revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 1 warning sign for Prolife Industries you should be aware of.

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.

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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.