Alpa Laboratories Limited's (NSE:ALPA) Shares Bounce 32% But Its Business Still Trails The Market

Despite an already strong run, Alpa Laboratories Limited (NSE:ALPA) shares have been powering on, with a gain of 32% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 53% in the last year.

In spite of the firm bounce in price, Alpa Laboratories may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 15.8x, since almost half of all companies in India have P/E ratios greater than 35x and even P/E's higher than 64x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Alpa Laboratories 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 that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Check out our latest analysis for Alpa Laboratories

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

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

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

Retrospectively, the last year delivered an exceptional 28% gain to the company's bottom line. Pleasingly, EPS has also lifted 55% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Alpa Laboratories' 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.

What We Can Learn From Alpa Laboratories' P/E?

Even after such a strong price move, Alpa Laboratories' P/E still trails the rest of the market significantly. 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 Alpa Laboratories 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. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Alpa Laboratories that you need to be mindful of.

If you're unsure about the strength of Alpa Laboratories' 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.