Earnings Tell The Story For Go Fashion (India) Limited (NSE:GOCOLORS)

Go Fashion (India) Limited's (NSE:GOCOLORS) price-to-earnings (or "P/E") ratio of 44.2x might make it look like a strong sell right now compared to the market in India, where around half of the companies have P/E ratios below 25x and even P/E's below 14x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Go Fashion (India) could be doing better as it's been growing earnings less than most other companies lately. One possibility is that the P/E is high because investors think this lacklustre earnings performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

View our latest analysis for Go Fashion (India)

Keen to find out how analysts think Go Fashion (India)'s future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Go Fashion (India)?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Go Fashion (India)'s to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 2.5%. This was backed up an excellent period prior to see EPS up by 178% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 30% during the coming year according to the eight analysts following the company. That's shaping up to be materially higher than the 25% growth forecast for the broader market.

With this information, we can see why Go Fashion (India) is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

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.

We've established that Go Fashion (India) maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Go Fashion (India) with six simple checks.

You might be able to find a better investment than Go Fashion (India). 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.