Kopran Limited's (NSE:KOPRAN) Shares Not Telling The Full Story

Kopran Limited's (NSE:KOPRAN) price-to-earnings (or "P/E") ratio of 9.9x might make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 13x and even P/E's above 31x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

For example, consider that Kopran's financial performance has been poor lately as it's earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Kopran

Although there are no analyst estimates available for Kopran, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Kopran's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Kopran's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 13%. Regardless, EPS has managed to lift by a handy 5.6% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Weighing the recent medium-term upward earnings trajectory against the broader market's one-year forecast for contraction of 0.6% shows it's a great look while it lasts.

In light of this, it's quite peculiar that Kopran's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can maintain its recent positive growth rate in the face of a shrinking broader market.

The Bottom Line On Kopran's P/E

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Kopran revealed its growing earnings over the medium-term aren't contributing to its P/E anywhere near as much as we would have predicted, given the market is set to shrink. We think potential risks might be placing significant pressure on the P/E ratio and share price. Perhaps there is some hesitation about the company's ability to stay its recent course and swim against the current of the broader market turmoil. It appears many are indeed anticipating earnings instability, because this relative performance should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 3 warning signs for Kopran that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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