Stock Analysis

Bharat Wire Ropes Limited (NSE:BHARATWIRE) Soars 27% But It's A Story Of Risk Vs Reward

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NSEI:BHARATWIRE

Bharat Wire Ropes Limited (NSE:BHARATWIRE) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Looking further back, the 10% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, Bharat Wire Ropes' price-to-earnings (or "P/E") ratio of 21.8x 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 35x and even P/E's above 66x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Earnings have risen firmly for Bharat Wire Ropes recently, which is pleasing to see. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Check out our latest analysis for Bharat Wire Ropes

NSEI:BHARATWIRE Price to Earnings Ratio vs Industry September 14th 2024
Although there are no analyst estimates available for Bharat Wire Ropes, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Bharat Wire Ropes' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Bharat Wire Ropes' is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 18% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 2,552% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is only predicted to deliver 25% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it odd that Bharat Wire Ropes 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.

The Final Word

Despite Bharat Wire Ropes' shares building up a head of steam, its P/E still lags most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Bharat Wire Ropes revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. 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. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Bharat Wire Ropes with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than Bharat Wire Ropes. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Valuation is complex, but we're here to simplify it.

Discover if Bharat Wire Ropes might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.