KN Agri Resources Limited (NSE:KNAGRI) Held Back By Insufficient Growth Even After Shares Climb 29%

Despite an already strong run, KN Agri Resources Limited (NSE:KNAGRI) shares have been powering on, with a gain of 29% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 47% in the last year.

Although its price has surged higher, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 33x, you may still consider KN Agri Resources as a highly attractive investment with its 14.2x 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.

The recent earnings growth at KN Agri Resources would have to be considered satisfactory if not spectacular. 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.

View our latest analysis for KN Agri Resources

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 KN Agri Resources' earnings, revenue and cash flow.

Is There Any Growth For KN Agri Resources?

There's an inherent assumption that a company should far underperform the market for P/E ratios like KN Agri Resources' to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 6.5%. However, this wasn't enough as the latest three year period has seen an unpleasant 11% overall drop in EPS. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's an unpleasant look.

With this information, we are not surprised that KN Agri Resources is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

What We Can Learn From KN Agri Resources' P/E?

Shares in KN Agri Resources 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 KN Agri Resources maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for KN Agri Resources you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com