Albert David Limited (NSE:ALBERTDAVD) Might Not Be As Mispriced As It Looks

There wouldn't be many who think Albert David Limited's (NSE:ALBERTDAVD) price-to-earnings (or "P/E") ratio of 12x is worth a mention when the median P/E in India is similar at about 13x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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 wane, which has kept the P/E from rising. 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 not quite in favour.

See our latest analysis for Albert David

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How Is Albert David's Growth Trending?

In order to justify its P/E ratio, Albert David would need to produce growth that's similar to the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 8.0% last year. The solid recent performance means it was also able to grow EPS by 12% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

In contrast to the company, the rest of the market is expected to decline by 5.2% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.

In light of this, it's peculiar that Albert David's P/E sits in line with the majority of other companies. It looks like most investors are not convinced the company can maintain its recent positive growth rate in the face of a shrinking broader market.

The Bottom Line On Albert David's P/E

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 Albert David currently trades on a lower than expected P/E since its recent three-year earnings growth is beating forecasts for a struggling market. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. Perhaps there is some hesitation about the company's ability to stay its recent course and swim against the current of the broader market turmoil. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Albert David that you need to be mindful of.

If these risks are making you reconsider your opinion on Albert David, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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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