Earnings Tell The Story For Sat Kartar Shopping Limited (NSE:SATKARTAR) As Its Stock Soars 27%

Sat Kartar Shopping Limited (NSE:SATKARTAR) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Since its price has surged higher, given around half the companies in India have price-to-earnings ratios (or "P/E's") below 27x, you may consider Sat Kartar Shopping as a stock to potentially avoid with its 30.8x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

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For example, consider that Sat Kartar Shopping's financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Sat Kartar Shopping

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Is There Enough Growth For Sat Kartar Shopping?

The only time you'd be truly comfortable seeing a P/E as high as Sat Kartar Shopping's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered a frustrating 72% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 403% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

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

With this information, we can see why Sat Kartar Shopping is trading at such a high P/E compared to the market. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What We Can Learn From Sat Kartar Shopping's P/E?

The large bounce in Sat Kartar Shopping's shares has lifted the company's P/E to a fairly high level. 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.

We've established that Sat Kartar Shopping maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 4 warning signs for Sat Kartar Shopping (1 is concerning!) that you should be aware of.

If these risks are making you reconsider your opinion on Sat Kartar Shopping, 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. 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.