Earnings Not Telling The Story For Mazagon Dock Shipbuilders Limited (NSE:MAZDOCK) After Shares Rise 27%

Despite an already strong run, Mazagon Dock Shipbuilders Limited (NSE:MAZDOCK) shares have been powering on, with a gain of 27% in the last thirty days. The annual gain comes to 157% following the latest surge, making investors sit up and take notice.

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 26x, you may consider Mazagon Dock Shipbuilders as a stock to avoid entirely with its 45.1x P/E ratio. 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.

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Recent times have been advantageous for Mazagon Dock Shipbuilders as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Mazagon Dock Shipbuilders

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

Is There Enough Growth For Mazagon Dock Shipbuilders?

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

Retrospectively, the last year delivered an exceptional 72% gain to the company's bottom line. Pleasingly, EPS has also lifted 287% 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.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 8.8% over the next year. Meanwhile, the rest of the market is forecast to expand by 24%, which is noticeably more attractive.

With this information, we find it concerning that Mazagon Dock Shipbuilders is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From Mazagon Dock Shipbuilders' P/E?

Shares in Mazagon Dock Shipbuilders have built up some good momentum lately, which has really inflated its P/E. 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.

Our examination of Mazagon Dock Shipbuilders' analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you settle on your opinion, we've discovered 1 warning sign for Mazagon Dock Shipbuilders that you should be aware of.

You might be able to find a better investment than Mazagon Dock Shipbuilders. 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.