Cellecor Gadgets Limited (NSE:CELLECOR) 26% share price gain doesn’t quite add up

Despite an already strong streak, Cellecor Gadgets Limited (NSE:CELLECOR) shares are on the rise, gaining 26% in the last thirty days. Long-term shareholders would appreciate a rebound in the share price, as it is now virtually flat a year after the recent rebound.

After such a large price jump, given that about half of companies in India have price-to-earnings ratios (or “P/E”) below 32x, you could consider Cellecor Gadgets a stock to potentially avoid with a P/E ratio of 39 .9x. E ratio. However, we would need to dig a little deeper to determine whether there is a rational basis for the increased P/E ratio.

Cellecor Gadgets has been performing well lately, growing earnings at a solid rate. It may be the case that many expect decent earnings above most peers in the coming period, which has increased investors’ willingness to pay for the stock. You’d really hope so, otherwise you’re paying quite a high price for no particular reason.

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Are Cellecor gadgets gaining enough growth?

Cellecor Gadgets’ P/E ratio would be typical of a company that is expected to grow solidly and, importantly, outperform the market.

Looking back, we see that the company grew earnings per share by an impressive 30% last year. However, EPS is barely up three years on, which is not ideal. As such, shareholders probably wouldn’t be overly pleased with the volatile medium-term growth rates.

Compared to a market that is expected to grow 25% over the next 12 months, the company’s momentum is weaker based on recent medium-term annual earnings results.

Based on this information, we find that Cellecor Gadgets is trading at a P/E ratio that is higher than the market. It seems that most investors ignore the rather limited recent growth rate and count on an improvement in the company’s business prospects. Only the bravest would assume that these prices are sustainable, as a continuation of recent earnings trends will likely ultimately weigh heavily on the share price.

Last word

Cellecor Gadgets stock has been pushed in the right direction, but its P/E ratio has also increased. We would say that the price-to-earnings ratio is not primarily used as a valuation instrument, but rather to measure current investor sentiment and future expectations.

Our examination of Cellecor Gadgets shows that three-year earnings trends are not driving its high P/E ratios as much as we would predict, given that they look worse than current market expectations. We’re becoming increasingly uncomfortable with the high P/E at the moment, as earnings results likely won’t support such positive sentiment for long. If recent medium-term earnings trends continue, this will expose shareholder investments to significant risk and potential investors to the risk of paying an excessive premium.

Before you take the next step, you should know about 4 warning signs for Cellecor Gadgets (2 make us uncomfortable!) that we discovered.

if you are there is no certainty about the strength of the Cellecor Gadgets businessExplore our interactive stock list of other companies with strong business fundamentals you may have missed.

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This article by Simply Wall St is of a general nature. We comment based on historical data and analyst forecasts, using only an unbiased methodology, and our articles are not intended to provide financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your objectives or your financial situation. Our goal is to provide you with long-term, focused analysis based on fundamental data. Please note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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