Market Cool On Godawari Power & Ispat Limited's (NSE:GPIL) Earnings

Godawari Power & Ispat Limited's (NSE:GPIL) price-to-earnings (or "P/E") ratio of 13.8x might 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 25x and even P/E's above 48x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, Godawari Power & Ispat's earnings have gone into reverse gear, which is not great. 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.

View our latest analysis for Godawari Power & Ispat

Keen to find out how analysts think Godawari Power & Ispat's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Godawari Power & Ispat?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 7.9%. As a result, earnings from three years ago have also fallen 38% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the one analyst covering the company suggest earnings should grow by 33% over the next year. With the market only predicted to deliver 25%, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Godawari Power & Ispat's P/E sits below the majority of other companies. 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?

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 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. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for Godawari Power & Ispat you should be aware of.

If you're unsure about the strength of Godawari Power & Ispat's 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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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.