Market Might Still Lack Some Conviction On Pratham EPC Projects Limited (NSE:PRATHAM) Even After 25% Share Price Boost

Pratham EPC Projects Limited (NSE:PRATHAM) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 22% in the last twelve months.

Even after such a large jump in price, Pratham EPC Projects' price-to-earnings (or "P/E") ratio of 22.6x might still make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 28x and even P/E's above 54x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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Pratham EPC Projects has been doing a decent job lately as it's been growing earnings at a reasonable pace. 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 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.

Check out our latest analysis for Pratham EPC Projects

Although there are no analyst estimates available for Pratham EPC Projects, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Pratham EPC Projects' Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Pratham EPC Projects' to be considered reasonable.

Retrospectively, the last year delivered a decent 2.5% gain to the company's bottom line. The latest three year period has also seen an excellent 127% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

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

With this information, we find it odd that Pratham EPC Projects is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Pratham EPC Projects' P/E?

Despite Pratham EPC Projects' shares building up a head of steam, its P/E still lags most other companies. 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 Pratham EPC Projects currently trades on a much 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 significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Before you take the next step, you should know about the 1 warning sign for Pratham EPC Projects that we have uncovered.

If you're unsure about the strength of Pratham EPC Projects' 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.