Earnings Not Telling The Story For Jindal Drilling & Industries Limited (NSE:JINDRILL) After Shares Rise 26%

Despite an already strong run, Jindal Drilling & Industries Limited (NSE:JINDRILL) shares have been powering on, with a gain of 26% in the last thirty days. The annual gain comes to 144% following the latest surge, making investors sit up and take notice.

After such a large jump in price, Jindal Drilling & Industries may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 31.6x, since almost half of all companies in India have P/E ratios under 27x and even P/E's lower than 15x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

For instance, Jindal Drilling & Industries' receding earnings in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

See our latest analysis for Jindal Drilling & Industries

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 Jindal Drilling & Industries' earnings, revenue and cash flow.

Is There Enough Growth For Jindal Drilling & Industries?

In order to justify its P/E ratio, Jindal Drilling & Industries would need to produce impressive growth in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 40%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's noticeably less attractive on an annualised basis.

With this information, we find it concerning that Jindal Drilling & Industries is trading at a P/E higher than the market. 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. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Jindal Drilling & Industries' P/E

Jindal Drilling & Industries' P/E is getting right up there since its shares have risen strongly. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Jindal Drilling & Industries currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. 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.

Plus, you should also learn about this 1 warning sign we've spotted with Jindal Drilling & Industries.

You might be able to find a better investment than Jindal Drilling & Industries. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.