Stock Analysis

Why Investors Shouldn't Be Surprised By S.J.S. Enterprises Limited's (NSE:SJS) 29% Share Price Surge

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S.J.S. Enterprises Limited (NSE:SJS) shares have had a really impressive month, gaining 29% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 47%.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about S.J.S. Enterprises' P/E ratio of 28.7x, since the median price-to-earnings (or "P/E") ratio in India is also close to 30x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Recent times have been advantageous for S.J.S. Enterprises as its earnings have been rising faster than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for S.J.S. Enterprises

NSEI:SJS Price to Earnings Ratio vs Industry June 8th 2024
If you'd like to see what analysts are forecasting going forward, you should check out our free report on S.J.S. Enterprises.

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like S.J.S. Enterprises' is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 24% gain to the company's bottom line. The latest three year period has also seen an excellent 74% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 27% over the next year. Meanwhile, the rest of the market is forecast to expand by 25%, which is not materially different.

With this information, we can see why S.J.S. Enterprises is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Bottom Line On S.J.S. Enterprises' P/E

Its shares have lifted substantially and now S.J.S. Enterprises' P/E is also back up to the market median. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of S.J.S. Enterprises' analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for S.J.S. Enterprises with six simple checks on some of these key factors.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Valuation is complex, but we're helping make it simple.

Find out whether S.J.S. Enterprises is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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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.