What Schneider Electric Infrastructure Limited's (NSE:SCHNEIDER) 28% Share Price Gain Is Not Telling You

Schneider Electric Infrastructure Limited (NSE:SCHNEIDER) shareholders have had their patience rewarded with a 28% share price jump in the last month. The annual gain comes to 173% following the latest surge, making investors sit up and take notice.

After such a large jump in price, Schneider Electric Infrastructure may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 61.2x, since almost half of all companies in India have P/E ratios under 29x 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 so lofty.

Schneider Electric Infrastructure certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Schneider Electric Infrastructure

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 Schneider Electric Infrastructure's earnings, revenue and cash flow.

How Is Schneider Electric Infrastructure's Growth Trending?

Schneider Electric Infrastructure's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered an exceptional 90% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the market, which is expected to grow by 26% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's alarming that Schneider Electric Infrastructure's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Final Word

Shares in Schneider Electric Infrastructure 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.

We've established that Schneider Electric Infrastructure currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 1 warning sign for Schneider Electric Infrastructure that you need to take into consideration.

If you're unsure about the strength of Schneider Electric Infrastructure'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.