Jay Bharat Maruti Limited (NSE:JAYBARMARU) Stock Catapults 26% Though Its Price And Business Still Lag The Market

Jay Bharat Maruti Limited (NSE:JAYBARMARU) shares have continued their recent momentum with a 26% gain in the last month alone. Notwithstanding the latest gain, the annual share price return of 6.4% isn't as impressive.

In spite of the firm bounce in price, Jay Bharat Maruti may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 23.1x, since almost half of all companies in India have P/E ratios greater than 28x and even P/E's higher than 54x 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.

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With earnings growth that's exceedingly strong of late, Jay Bharat Maruti has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 Jay Bharat Maruti

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

How Is Jay Bharat Maruti's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Jay Bharat Maruti's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 56%. The strong recent performance means it was also able to grow EPS by 54% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Jay Bharat Maruti is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

Jay Bharat Maruti's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

We've established that Jay Bharat Maruti maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Jay Bharat Maruti that you should be aware of.

If these risks are making you reconsider your opinion on Jay Bharat Maruti, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.