Earnings Tell The Story For Jupiter Wagons Limited (NSE:JWL) As Its Stock Soars 29%

The Jupiter Wagons Limited (NSE:JWL) share price has done very well over the last month, posting an excellent gain of 29%. The last 30 days were the cherry on top of the stock's 317% gain in the last year, which is nothing short of spectacular.

After such a large jump in price, Jupiter Wagons may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 60.8x, since almost half of all companies in India have P/E ratios under 30x and even P/E's lower than 17x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

With earnings growth that's superior to most other companies of late, Jupiter Wagons has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Jupiter Wagons

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

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

Jupiter Wagons' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 164% last year. The latest three year period has also seen an excellent 439% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 48% as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 24%, which is noticeably less attractive.

With this information, we can see why Jupiter Wagons is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Jupiter Wagons' P/E is flying high just like its stock has during the last month. 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.

We've established that Jupiter Wagons maintains its high P/E on the strength of its forecast growth being higher than the wider market, 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. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Jupiter Wagons (1 can't be ignored!) that you should be aware of before investing here.

You might be able to find a better investment than Jupiter Wagons. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.