Jupiter Wagons Limited's (NSE:JWL) Stock Retreats 25% But Earnings Haven't Escaped The Attention Of Investors

The Jupiter Wagons Limited (NSE:JWL) share price has fared very poorly over the last month, falling by a substantial 25%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 10% share price drop.

Even after such a large drop in price, Jupiter Wagons may still be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 41.8x, since almost half of all companies in India have P/E ratios under 28x and even P/E's lower than 16x 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 as high as it is.

With earnings growth that's superior to most other companies of late, Jupiter Wagons has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. 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

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Does Growth Match The High P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 49% last year. Pleasingly, EPS has also lifted 523% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 23% per annum during the coming three years according to the three analysts following the company. That's shaping up to be materially higher than the 19% per annum growth forecast for the broader market.

In light of this, it's understandable that Jupiter Wagons' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Jupiter Wagons' P/E?

Jupiter Wagons' P/E hasn't come down all the way after its stock plunged. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

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. 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.

It is also worth noting that we have found 3 warning signs for Jupiter Wagons (2 make us uncomfortable!) that you need to take into consideration.

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.