After Leaping 26% Jay Bharat Maruti Limited (NSE:JAYBARMARU) Shares Are Not Flying Under The Radar

Jay Bharat Maruti Limited (NSE:JAYBARMARU) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The last month tops off a massive increase of 106% in the last year.

Following the firm bounce in price, Jay Bharat Maruti may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 40.2x, since almost half of all companies in India have P/E ratios under 30x and even P/E's lower than 17x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

As an illustration, earnings have deteriorated at Jay Bharat Maruti over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

See our latest analysis for Jay Bharat Maruti

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Jay Bharat Maruti's earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The High P/E?

The only time you'd be truly comfortable seeing a P/E as high as Jay Bharat Maruti's 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 7.9%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 642% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Comparing that to the market, which is only predicted to deliver 25% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's understandable that Jay Bharat Maruti's P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Key Takeaway

Jay Bharat Maruti shares have received a push in the right direction, but its P/E is elevated too. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Jay Bharat Maruti maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Jay Bharat Maruti (2 are a bit unpleasant!) that you should be aware of before investing here.

If you're unsure about the strength of Jay Bharat Maruti's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.