ADF Foods Limited (NSE:ADFFOODS) Stock Rockets 27% As Investors Are Less Pessimistic Than Expected

Simply Wall St · 06/10 00:47

ADF Foods Limited (NSE:ADFFOODS) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Looking further back, the 22% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Since its price has surged higher, ADF Foods' price-to-earnings (or "P/E") ratio of 43.6x might make it look like a sell right now compared to the market in India, where around half of the companies have P/E ratios below 29x and even P/E's below 16x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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ADF Foods hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for ADF Foods

pe-multiple-vs-industry
NSEI:ADFFOODS Price to Earnings Ratio vs Industry June 10th 2025
Want the full picture on analyst estimates for the company? Then our free report on ADF Foods will help you uncover what's on the horizon.

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as high as ADF Foods' is when the company's growth is on track to outshine the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 8.1%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 31% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Turning to the outlook, the next year should generate growth of 9.5% as estimated by the one analyst watching the company. Meanwhile, the rest of the market is forecast to expand by 23%, which is noticeably more attractive.

With this information, we find it concerning that ADF Foods is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

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The Bottom Line On ADF Foods' P/E

ADF Foods shares have received a push in the right direction, but its P/E is elevated too. 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.

Our examination of ADF Foods' analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider and we've discovered 2 warning signs for ADF Foods (1 is a bit unpleasant!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.