The Market Lifts GPT Infraprojects Limited (NSE:GPTINFRA) Shares 25% But It Can Do More

GPT Infraprojects Limited (NSE:GPTINFRA) shares have had a really impressive month, gaining 25% after a shaky period beforehand. This latest share price bounce rounds out a remarkable 365% gain over the last twelve months.

Even after such a large jump in price, GPT Infraprojects may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 25.4x, since almost half of all companies in India have P/E ratios greater than 32x and even P/E's higher than 60x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

GPT Infraprojects certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for GPT Infraprojects

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 GPT Infraprojects' earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, GPT Infraprojects would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 64%. Pleasingly, EPS has also lifted 307% 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.

This is in contrast to the rest of the market, which is expected to grow by 24% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that GPT Infraprojects 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 Key Takeaway

Despite GPT Infraprojects' shares building up a head of steam, its P/E still lags most other companies. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of GPT Infraprojects revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 3 warning signs for GPT Infraprojects (1 can't be ignored!) that you should be aware of.

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.