Some Shareholders Feeling Restless Over Giriraj Civil Developers Limited's (NSE:GIRIRAJ) P/E Ratio

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 32x, you may consider Giriraj Civil Developers Limited (NSE:GIRIRAJ) as a stock to avoid entirely with its 71.1x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's exceedingly strong of late, Giriraj Civil Developers has been doing very well. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Giriraj Civil Developers

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 Giriraj Civil Developers' earnings, revenue and cash flow.

Is There Enough Growth For Giriraj Civil Developers?

The only time you'd be truly comfortable seeing a P/E as steep as Giriraj Civil Developers' is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 87% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 96% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

It's interesting to note that the rest of the market is similarly expected to grow by 26% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's curious that Giriraj Civil Developers' P/E sits above the majority of other companies. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Nevertheless, they may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Bottom Line On Giriraj Civil Developers' 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.

Our examination of Giriraj Civil Developers revealed its three-year earnings trends aren't impacting its high P/E as much as we would have predicted, given they look similar to current market expectations. When we see average earnings with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Plus, you should also learn about these 4 warning signs we've spotted with Giriraj Civil Developers (including 2 which can't be ignored).

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.

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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.