Jayant Agro-Organics Limited's (NSE:JAYAGROGN) Earnings Are Not Doing Enough For Some Investors

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 26x, you may consider Jayant Agro-Organics Limited (NSE:JAYAGROGN) as a highly attractive investment with its 11x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Earnings have risen firmly for Jayant Agro-Organics 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 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.

Check out our latest analysis for Jayant Agro-Organics

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 Jayant Agro-Organics' earnings, revenue and cash flow.

How Is Jayant Agro-Organics' Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Jayant Agro-Organics' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 21%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 31% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Comparing that to the market, which is predicted to deliver 25% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we are not surprised that Jayant Agro-Organics is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

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.

As we suspected, our examination of Jayant Agro-Organics revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Jayant Agro-Organics (1 makes us a bit uncomfortable) you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.