Rex Pipes and Cables Industries Limited (NSE:REXPIPES) Screens Well But There Might Be A Catch

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 33x, you may consider Rex Pipes and Cables Industries Limited (NSE:REXPIPES) as a highly attractive investment with its 13.4x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Rex Pipes and Cables Industries has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Rex Pipes and Cables Industries

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Rex Pipes and Cables Industries' earnings, revenue and cash flow.

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

There's an inherent assumption that a company should far underperform the market for P/E ratios like Rex Pipes and Cables Industries' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 19%. Pleasingly, EPS has also lifted 203% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 25% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's peculiar that Rex Pipes and Cables Industries' P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Rex Pipes and Cables Industries revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 2 warning signs for Rex Pipes and Cables Industries you should be aware of.

Of course, you might also be able to find a better stock than Rex Pipes and Cables Industries. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com