SKM Egg Products Export (India) Limited (NSE:SKMEGGPROD) Stock's 27% Dive Might Signal An Opportunity But It Requires Some Scrutiny
SKM Egg Products Export (India) Limited (NSE:SKMEGGPROD) shares have had a horrible month, losing 27% after a relatively good period beforehand. Still, a bad month hasn't completely ruined the past year with the stock gaining 45%, which is great even in a bull market.
In spite of the heavy fall in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 25x, you may still consider SKM Egg Products Export (India) as an attractive investment with its 15.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
The earnings growth achieved at SKM Egg Products Export (India) over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. 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 out of favour.
See our latest analysis for SKM Egg Products Export (India)
Does Growth Match The Low P/E?
There's an inherent assumption that a company should underperform the market for P/E ratios like SKM Egg Products Export (India)'s to be considered reasonable.
If we review the last year of earnings growth, the company posted a terrific increase of 29%. Pleasingly, EPS has also lifted 149% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Comparing that to the market, which is only predicted to deliver 25% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.
With this information, we find it odd that SKM Egg Products Export (India) is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.
The Bottom Line On SKM Egg Products Export (India)'s P/E
SKM Egg Products Export (India)'s P/E has taken a tumble along with its share price. 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 SKM Egg Products Export (India) currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.
We don't want to rain on the parade too much, but we did also find 2 warning signs for SKM Egg Products Export (India) that you need to be mindful of.
If these risks are making you reconsider your opinion on SKM Egg Products Export (India), 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.