Gallantt Ispat (NSE:GALLISPAT) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month alone, although it is still down 38% over the last quarter. But shareholders may not all be feeling jubilant, since the share price is still down 40% in the last year.
All else being equal, a sharp share price increase should make a stock less attractive to potential investors. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. The implication here is that deep value investors might steer clear when expectations of a company are too high. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). A high P/E ratio means that investors have a high expectation about future growth, while a low P/E ratio means they have low expectations about future growth.
View our latest analysis for Gallantt Ispat
Does Gallantt Ispat Have A Relatively High Or Low P/E For Its Industry?
We can tell from its P/E ratio of 4.47 that sentiment around Gallantt Ispat isn't particularly high. We can see in the image below that the average P/E (8.9) for companies in the metals and mining industry is higher than Gallantt Ispat's P/E.
This suggests that market participants think Gallantt Ispat will underperform other companies in its industry. Since the market seems unimpressed with Gallantt Ispat, it's quite possible it could surprise on the upside. If you consider the stock interesting, further research is recommended. For example, I often monitor director buying and selling.
How Growth Rates Impact P/E Ratios
Earnings growth rates have a big influence on P/E ratios. If earnings are growing quickly, then the 'E' in the equation will increase faster than it would otherwise. That means unless the share price increases, the P/E will reduce in a few years. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.
It's nice to see that Gallantt Ispat grew EPS by a stonking 40% in the last year. And earnings per share have improved by 49% annually, over the last five years. I'd therefore be a little surprised if its P/E ratio was not relatively high.
Remember: P/E Ratios Don't Consider The Balance Sheet
The 'Price' in P/E reflects the market capitalization of the company. That means it doesn't take debt or cash into account. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.