Kapston Services Limited's (NSE:KAPSTON) Shares Leap 29% Yet They're Still Not Telling The Full Story

Kapston Services Limited (NSE:KAPSTON) shareholders have had their patience rewarded with a 29% share price jump in the last month. Looking further back, the 21% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Kapston Services' P/E ratio of 27.5x, since the median price-to-earnings (or "P/E") ratio in India is also close to 27x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Recent times have been quite advantageous for Kapston Services as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

See our latest analysis for Kapston Services

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

How Is Kapston Services' Growth Trending?

The only time you'd be comfortable seeing a P/E like Kapston Services' is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 87% last year. The strong recent performance means it was also able to grow EPS by 391% in total over the last three years. 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 25% 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 Kapston Services is trading at a fairly similar P/E to the market. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Kapston Services' stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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.

We've established that Kapston Services currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. 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. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Plus, you should also learn about these 3 warning signs we've spotted with Kapston Services (including 2 which shouldn't be ignored).

If you're unsure about the strength of Kapston Services' 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.