Capacit'e Infraprojects Limited (NSE:CAPACITE) Stock Catapults 29% Though Its Price And Business Still Lag The Market

Capacit'e Infraprojects Limited (NSE:CAPACITE) shares have had a really impressive month, gaining 29% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 71% in the last year.

Although its price has surged higher, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 33x, you may still consider Capacit'e Infraprojects as an attractive investment with its 19.5x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Capacit'e Infraprojects as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Capacit'e Infraprojects

Keen to find out how analysts think Capacit'e Infraprojects' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Capacit'e Infraprojects' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Capacit'e Infraprojects' 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 55%. Pleasingly, EPS has also lifted 149% in aggregate from three years ago, thanks to the last 12 months of growth. 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 three analysts covering the company suggest earnings should grow by 15% per annum over the next three years. Meanwhile, the rest of the market is forecast to expand by 20% per year, which is noticeably more attractive.

With this information, we can see why Capacit'e Infraprojects is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Capacit'e Infraprojects' 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 Capacit'e Infraprojects maintains its low P/E on the weakness of its forecast growth being lower than the wider market, 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. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 1 warning sign for Capacit'e Infraprojects that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.