Investors Interested In Kalpataru Projects International Limited's (NSE:KPIL) Earnings

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 30x, you may consider Kalpataru Projects International Limited (NSE:KPIL) as a stock to potentially avoid with its 35.5x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times haven't been advantageous for Kalpataru Projects International as its earnings have been rising slower than most other companies. One possibility is that the P/E is high because investors think this lacklustre earnings performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Kalpataru Projects International

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Does Growth Match The High P/E?

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

Retrospectively, the last year delivered a decent 6.6% gain to the company's bottom line. Still, lamentably EPS has fallen 25% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 34% per annum over the next three years. Meanwhile, the rest of the market is forecast to only expand by 19% each year, which is noticeably less attractive.

In light of this, it's understandable that Kalpataru Projects International's 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.

The Key Takeaway

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.

As we suspected, our examination of Kalpataru Projects International's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Kalpataru Projects International (1 doesn't sit too well with us!) that you need to be mindful of.

If you're unsure about the strength of Kalpataru Projects International's 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.