G R Infraprojects Limited's (NSE:GRINFRA) Share Price Boosted 28% But Its Business Prospects Need A Lift Too

G R Infraprojects Limited (NSE:GRINFRA) shares have continued their recent momentum with a 28% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 35% in the last year.

Even after such a large jump in price, G R Infraprojects' price-to-earnings (or "P/E") ratio of 12.4x might still make it look like a strong buy right now compared to the market in India, where around half of the companies have P/E ratios above 31x and even P/E's above 61x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, G R Infraprojects' earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for G R Infraprojects

If you'd like to see what analysts are forecasting going forward, you should check out our free report on G R Infraprojects.

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

There's an inherent assumption that a company should far underperform the market for P/E ratios like G R Infraprojects' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 9.0% decrease to the company's bottom line. Even so, admirably EPS has lifted 39% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the twelve analysts covering the company suggest earnings growth is heading into negative territory, declining 11% per annum over the next three years. With the market predicted to deliver 21% growth per year, that's a disappointing outcome.

With this information, we are not surprised that G R Infraprojects is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

Even after such a strong price move, G R Infraprojects' P/E still trails the rest of the market significantly. 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.

As we suspected, our examination of G R Infraprojects' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. 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.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for G R Infraprojects that you should be aware of.

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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