Barak Valley Cements Limited (NSE:BVCL) Shares Fly 31% But Investors Aren't Buying For Growth

Barak Valley Cements Limited (NSE:BVCL) shares have had a really impressive month, gaining 31% after a shaky period beforehand. The last month tops off a massive increase of 137% in the last year.

Although its price has surged higher, Barak Valley Cements' price-to-earnings (or "P/E") ratio of 8.4x might still make it look like a strong buy right now compared to the market in India, where around half of the companies have P/E ratios above 21x and even P/E's above 46x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Earnings have risen firmly for Barak Valley Cements recently, which is pleasing to see. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. 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 Barak Valley Cements

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 Barak Valley Cements' earnings, revenue and cash flow.

Does Growth Match The Low P/E?

Barak Valley Cements' P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings growth, the company posted a worthy increase of 13%. Still, EPS has barely risen at all in aggregate from three years ago, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 30% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Barak Valley Cements' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From Barak Valley Cements' P/E?

Shares in Barak Valley Cements 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 Barak Valley Cements maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, 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 rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 3 warning signs for Barak Valley Cements (2 are concerning!) that you should be aware of.

If you're unsure about the strength of Barak Valley Cements' 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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