Jupiter Wagons Limited's (NSE:JWL) 26% Jump Shows Its Popularity With Investors

Those holding Jupiter Wagons Limited (NSE:JWL) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Looking back a bit further, it's encouraging to see the stock is up 65% in the last year.

After such a large jump in price, given close to half the companies in India have price-to-earnings ratios (or "P/E's") below 33x, you may consider Jupiter Wagons as a stock to avoid entirely with its 64x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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.

See our latest analysis for Jupiter Wagons

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Does Growth Match The High P/E?

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

Retrospectively, the last year delivered an exceptional 49% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 523% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 23% each year as estimated by the three analysts watching the company. With the market only predicted to deliver 20% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Jupiter Wagons' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Shares in Jupiter Wagons have built up some good momentum lately, which has really inflated its P/E. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Jupiter Wagons' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 3 warning signs we've spotted with Jupiter Wagons (including 1 which is potentially serious).

If you're unsure about the strength of Jupiter Wagons' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.