Not Many Are Piling Into Godawari Power & Ispat Limited (NSE:GPIL) Just Yet

With a price-to-earnings (or "P/E") ratio of 13.7x Godawari Power & Ispat Limited (NSE:GPIL) may be sending very bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 32x and even P/E's higher than 59x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times haven't been advantageous for Godawari Power & Ispat as its earnings have been rising slower than most other companies. It seems that many are expecting the uninspiring earnings performance to persist, which has repressed the P/E. If you still like the company, you'd be hoping earnings don't get any worse and that you could 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 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 growth, the company posted a terrific increase of 17%. However, this wasn't enough as the latest three year period has seen a very unpleasant 20% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 28% each year over the next three years. With the market only predicted to deliver 19% per annum, the company is positioned for a stronger earnings result.

With this information, we find it odd that Godawari Power & Ispat is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Godawari Power & Ispat's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

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. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Godawari Power & Ispat, and understanding should be part of your investment process.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.