The Market Lifts Albert David Limited (NSE:ALBERTDAVD) Shares 33% But It Can Do More

Albert David Limited (NSE:ALBERTDAVD) shares have continued their recent momentum with a 33% gain in the last month alone. The annual gain comes to 120% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, Albert David's price-to-earnings (or "P/E") ratio of 12.2x 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 31x and even P/E's above 60x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Albert David certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Albert David

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

Is There Any Growth For Albert David?

The only time you'd be truly comfortable seeing a P/E as depressed as Albert David's is when the company's growth is on track to lag the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 71% last year. The strong recent performance means it was also able to grow EPS by 443% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Albert David is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

Shares in Albert David are going to need a lot more upward momentum to get the company's P/E out of its slump. 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 Albert David revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Albert David (1 is a bit concerning) you should be aware of.

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.