Sentiment Still Eluding Anant Raj Limited (NSE:ANANTRAJ)

With a price-to-earnings (or "P/E") ratio of 6.3x Anant Raj Limited (NSE:ANANTRAJ) may be sending bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 13x and even P/E's higher than 30x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With earnings growth that's exceedingly strong of late, Anant Raj has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Anant Raj

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Anant Raj will help you shine a light on its historical performance.

Does Growth Match The Low P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 82% last year. The strong recent performance means it was also able to grow EPS by 107% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

In contrast to the company, the rest of the market is expected to decline by 6.7% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.

With this information, we find it very odd that Anant Raj is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

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 Anant Raj 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. At least the risk of a price drop looks to be subdued, but investors think future earnings could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 5 warning signs for Anant Raj (of which 2 are concerning!) you should know about.

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 P/E below 20x.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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