Udayshivakumar Infra Limited (NSE:USK) Held Back By Insufficient Growth Even After Shares Climb 33%

Despite an already strong run, Udayshivakumar Infra Limited (NSE:USK) shares have been powering on, with a gain of 33% in the last thirty days. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Although its price has surged higher, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 32x, you may still consider Udayshivakumar Infra as an attractive investment with its 16.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Earnings have risen at a steady rate over the last year for Udayshivakumar Infra, which is generally not a bad outcome. One possibility is that the P/E is low because investors think this good earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

See our latest analysis for Udayshivakumar Infra

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 Udayshivakumar Infra's earnings, revenue and cash flow.

Is There Any Growth For Udayshivakumar Infra?

The only time you'd be truly comfortable seeing a P/E as low as Udayshivakumar Infra's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 3.3% last year. This was backed up an excellent period prior to see EPS up by 53% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Udayshivakumar Infra is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On Udayshivakumar Infra's P/E

The latest share price surge wasn't enough to lift Udayshivakumar Infra's P/E close to the market median. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Udayshivakumar Infra maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 3 warning signs for Udayshivakumar Infra that we have uncovered.

If you're unsure about the strength of Udayshivakumar Infra'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.