Market Participants Recognise Jash Engineering Limited's (NSE:JASH) Earnings Pushing Shares 44% Higher

Jash Engineering Limited (NSE:JASH) shareholders would be excited to see that the share price has had a great month, posting a 44% gain and recovering from prior weakness. The annual gain comes to 141% following the latest surge, making investors sit up and take notice.

After such a large jump in price, Jash Engineering may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 44.2x, since almost half of all companies in India have P/E ratios under 31x and even P/E's lower than 18x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

The earnings growth achieved at Jash Engineering over the last year would be more than acceptable for most companies. One possibility is that the P/E is high because investors think this respectable 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.

Check out our latest analysis for Jash Engineering

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 Jash Engineering's earnings, revenue and cash flow.

Is There Enough Growth For Jash Engineering?

There's an inherent assumption that a company should outperform the market for P/E ratios like Jash Engineering's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 28%. Pleasingly, EPS has also lifted 115% in aggregate from three years ago, thanks to the last 12 months of growth. 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 24% shows it's noticeably more attractive on an annualised basis.

With this information, we can see why Jash Engineering is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

What We Can Learn From Jash Engineering's P/E?

Jash Engineering shares have received a push in the right direction, but its P/E is elevated too. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Jash Engineering maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Jash Engineering is showing 1 warning sign in our investment analysis, you should know about.

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.