A Piece Of The Puzzle Missing From Albert David Limited's (NSE:ALBERTDAVD) 26% Share Price Climb

Despite an already strong run, Albert David Limited (NSE:ALBERTDAVD) shares have been powering on, with a gain of 26% in the last thirty days. The last month tops off a massive increase of 104% in the last year.

Although its price has surged higher, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 35x, you may still consider Albert David as a highly attractive investment with its 13.1x 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.

The earnings growth achieved at Albert David over the last year would be more than acceptable for most companies. 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 Albert David

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 Albert David's earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The Low P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 22% last year. The strong recent performance means it was also able to grow EPS by 110% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

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

In light of this, it's peculiar that Albert David'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 Bottom Line On Albert David's P/E

Albert David's recent share price jump still sees its P/E sitting firmly flat on the ground. 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 Albert David 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.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Albert David with six simple checks on some of these key factors.

You might be able to find a better investment than Albert David. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.