Jai Corp Limited (NSE:JAICORPLTD) Stock Rockets 33% But Many Are Still Ignoring The Company

Jai Corp Limited (NSE:JAICORPLTD) shares have had a really impressive month, gaining 33% after a shaky period beforehand. But the last month did very little to improve the 61% share price decline over the last year.

In spite of the firm bounce in price, Jai's price-to-earnings (or "P/E") ratio of 15.9x 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 28x and even P/E's above 54x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Recent times have been quite advantageous for Jai as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you 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 Jai

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 Jai's earnings, revenue and cash flow.

How Is Jai's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 161%. The strong recent performance means it was also able to grow EPS by 189% 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.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that Jai's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Key Takeaway

Jai's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Jai 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. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Having said that, be aware Jai is showing 1 warning sign in our investment analysis, you should know about.

You might be able to find a better investment than Jai. 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).

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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.