Jindal Poly Investment and Finance Company Limited (NSE:JPOLYINVST) Shares Fly 26% But Investors Aren't Buying For Growth

Jindal Poly Investment and Finance Company Limited (NSE:JPOLYINVST) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 95% in the last year.

In spite of the firm bounce in price, given close to half the companies in India have price-to-earnings ratios (or "P/E's") above 22x, you may still consider Jindal Poly Investment and Finance as a highly attractive investment with its 2.2x 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.

For example, consider that Jindal Poly Investment and Finance's financial performance has been poor lately as it's earnings have been in decline. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming 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 Jindal Poly Investment and Finance

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

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Jindal Poly Investment and Finance would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 58%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 24% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Jindal Poly Investment and Finance's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From Jindal Poly Investment and Finance's P/E?

Shares in Jindal Poly Investment and Finance are going to need a lot more upward momentum to get the company's P/E out of its slump. 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 Jindal Poly Investment and Finance 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.

You always need to take note of risks, for example - Jindal Poly Investment and Finance has 3 warning signs we think you should be aware of.

Of course, you might also be able to find a better stock than Jindal Poly Investment and Finance. So you may wish to see this free collection of other companies that sit on P/E's below 20x 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.