AVP Infracon Limited's (NSE:AVPINFRA) Subdued P/E Might Signal An Opportunity

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 30x, you may consider AVP Infracon Limited (NSE:AVPINFRA) as an attractive investment with its 15.9x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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AVP Infracon has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for AVP Infracon

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

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

The only time you'd be truly comfortable seeing a P/E as low as AVP Infracon'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 29%. The latest three year period has also seen an excellent 761% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 23% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that AVP Infracon is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On AVP Infracon'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.

We've established that AVP Infracon currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

There are also other vital risk factors to consider and we've discovered 4 warning signs for AVP Infracon (3 are a bit concerning!) that you should be aware of before investing here.

If you're unsure about the strength of AVP Infracon'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.