Vaishali Pharma Limited's (NSE:VAISHALI) Shares Leap 30% Yet They're Still Not Telling The Full Story

Vaishali Pharma Limited (NSE:VAISHALI) shares have continued their recent momentum with a 30% gain in the last month alone. Looking further back, the 16% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, it's still not a stretch to say that Vaishali Pharma's price-to-earnings (or "P/E") ratio of 29.2x right now seems quite "middle-of-the-road" compared to the market in India, where the median P/E ratio is around 29x. 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.

Vaishali Pharma has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is moderate because investors think this respectable earnings growth might not be enough to outperform the broader market in the near future. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

See our latest analysis for Vaishali Pharma

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Vaishali Pharma's earnings, revenue and cash flow.

Is There Some Growth For Vaishali Pharma?

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

Retrospectively, the last year delivered an exceptional 20% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 2,767% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 26% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's curious that Vaishali Pharma's P/E sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Vaishali Pharma appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Vaishali Pharma revealed its three-year earnings trends aren't contributing to its P/E 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 pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You always need to take note of risks, for example - Vaishali Pharma has 2 warning signs we think you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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