Celebrity Fashion Limited (NSE:CELEBRITY) shareholders will be thrilled to see the stock has had a great month, with the share price up 27% and rebounding from previous weakness. The annual increase in the past 30 days has reached 34%.
Despite the solid rebound in price, not many would still consider Celebrity Fashions’ price-to-earnings (or “P/E”) multiple of 32.3 to be noteworthy, given the median P/E ratio in India. . The same goes for approximately 31x. However, if the P/E ratio does not have a rational basis, investors may miss clear opportunities or potential setbacks.
For example, the recent decline in celebrity fashion profits should be food for thought. One possibility is that the P/E ratio is moderate because investors think the company has the potential to perform well enough to keep pace with the broader market in the near future. . If this isn’t the case, existing shareholders might be a little worried about the viability of the share price.
Check out our latest celebrity fashion analysis
We don’t have analyst forecasts, but checking our forecasts will tell you how recent trends are setting up the company’s future. free A report on Celebrity Fashions’ earnings, revenue and cash flow.
What do growth metrics tell us about the P/E ratio?
To justify the P/E ratio, celebrity fashion would need to grow in line with the market.
Looking back at last year’s earnings, we unfortunately saw the company’s profit drop by 53%. This wipes out all of the previous three years’ gains, leaving his EPS essentially unchanged in total. So it looks like the company has had mixed results in terms of revenue growth over this period.
This is in contrast to the rest of the market, which is expected to grow by 24% over the next 12 months, significantly higher than the company’s recent medium-term annual growth rate.
With this information, we find it interesting that Celebrity Fashions is trading at a P/E ratio that is roughly in line with the market. Apparently, many investors in the company aren’t as bearish as they’ve been made out to be lately, and aren’t looking to exit the stock right away. If the P/E declines to levels commensurate with recent growth, they may be setting themselves up for future disappointment.
Celebrity fashion PER conclusion
The company’s stock price has risen significantly, and Celebrity Fashions’ P/E ratio has now recovered to the market median. The power of the price-to-earnings ratio is not primarily as a valuation tool, but rather as a gauge of current investor sentiment and future expectations.
An investigation into Celebrity Fashion revealed that the company’s three-year earnings trend looked worse than current market expectations, so it wasn’t having as much of an impact on P/E as expected. We’re uncomfortable with the P/E ratio at this point, as this earnings performance is unlikely to support more positive sentiment over the long term. Unless recent medium-term conditions improve, it is difficult to accept these prices as reasonable.
That being said, please be careful Celebrity fashion shows 5 red flags Two of them are a bit concerning in our investment analysis.
If you are interested in P/E ratioyou might want to see this free A collection of other companies with high earnings growth and low P/E ratios.
Valuation is complex, but we help make it simple.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and the articles are not intended as financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.