VST Industries Limited (NSE:VSTIND) Shares Fly 28% But Investors Aren't Buying For Growth

VST Industries Limited (NSE:VSTIND) shareholders have had their patience rewarded with a 28% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 51% in the last year.

Although its price has surged higher, VST Industries may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 2.7x, since almost half of all companies in India have P/E ratios greater than 35x and even P/E's higher than 65x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

VST Industries could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for VST Industries

Want the full picture on analyst estimates for the company? Then our free report on VST Industries will help you uncover what's on the horizon.

Is There Any Growth For VST Industries?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 1.7%. Still, the latest three year period has seen an excellent 877% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 17% during the coming year according to the lone analyst following the company. That's shaping up to be materially lower than the 25% growth forecast for the broader market.

In light of this, it's understandable that VST Industries' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On VST Industries' P/E

VST Industries' recent share price jump still sees its P/E sitting firmly flat on the ground. 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.

As we suspected, our examination of VST Industries' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware VST Industries is showing 3 warning signs in our investment analysis, you should know about.

You might be able to find a better investment than VST 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.