Sentiment Still Eluding Shakti Pumps (India) Limited (NSE:SHAKTIPUMP)

There wouldn't be many who think Shakti Pumps (India) Limited's (NSE:SHAKTIPUMP) price-to-earnings (or "P/E") ratio of 26.5x is worth a mention when the median P/E in India is similar at about 29x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Shakti Pumps (India) certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Shakti Pumps (India)

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shakti Pumps (India) will help you shine a light on its historical performance.

How Is Shakti Pumps (India)'s Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Shakti Pumps (India)'s to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 165%. Pleasingly, EPS has also lifted 463% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is only predicted to deliver 24% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it interesting that Shakti Pumps (India) is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Shakti Pumps (India) revealed its three-year earnings trends aren't contributing to its P/E 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 pressure on the P/E ratio. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

It is also worth noting that we have found 1 warning sign for Shakti Pumps (India) that you need to take into consideration.

Of course, you might also be able to find a better stock than Shakti Pumps (India). 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.