Market Participants Recognise Alembic Pharmaceuticals Limited's (NSE:APLLTD) Earnings Pushing Shares 25% Higher

Alembic Pharmaceuticals Limited (NSE:APLLTD) shares have had a really impressive month, gaining 25% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 56%.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Alembic Pharmaceuticals' P/E ratio of 34.5x, since the median price-to-earnings (or "P/E") ratio in India is also close to 34x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Alembic Pharmaceuticals certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong 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.

Check out our latest analysis for Alembic Pharmaceuticals

Keen to find out how analysts think Alembic Pharmaceuticals' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Alembic Pharmaceuticals' Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Alembic Pharmaceuticals' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 80% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 47% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 20% per annum as estimated by the twelve analysts watching the company. With the market predicted to deliver 22% growth per year, the company is positioned for a comparable earnings result.

With this information, we can see why Alembic Pharmaceuticals is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Bottom Line On Alembic Pharmaceuticals' P/E

Its shares have lifted substantially and now Alembic Pharmaceuticals' P/E is also back up to the market median. 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.

As we suspected, our examination of Alembic Pharmaceuticals' analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

Plus, you should also learn about this 1 warning sign we've spotted with Alembic Pharmaceuticals.

You might be able to find a better investment than Alembic Pharmaceuticals. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com