Fewer Investors Than Expected Jumping On Godawari Power & Ispat Limited (NSE:GPIL)

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 30x, you may consider Godawari Power & Ispat Limited (NSE:GPIL) as a highly attractive investment with its 13.1x 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.

Godawari Power & Ispat could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still 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.

See our latest analysis for Godawari Power & Ispat

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Godawari Power & Ispat.

How Is Godawari Power & Ispat's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Godawari Power & Ispat's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 35%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 281% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should generate growth of 22% per annum as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 19% each year growth forecast for the broader market.

With this information, we find it odd that Godawari Power & Ispat is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Godawari Power & Ispat's P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Godawari Power & Ispat currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Before you settle on your opinion, we've discovered 2 warning signs for Godawari Power & Ispat that you should be aware of.

You might be able to find a better investment than Godawari Power & Ispat. 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).

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

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.