Jindal Saw Limited's (NSE:JINDALSAW) Shares Bounce 26% But Its Business Still Trails The Market

Jindal Saw Limited (NSE:JINDALSAW) shareholders have had their patience rewarded with a 26% share price jump in the last month. The annual gain comes to 117% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, Jindal Saw's price-to-earnings (or "P/E") ratio of 11.8x might still make it look like a strong buy right now compared to the market in India, where around half of the companies have P/E ratios above 34x and even P/E's above 63x are quite common. 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.

With earnings growth that's superior to most other companies of late, Jindal Saw has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Jindal Saw

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

What Are Growth Metrics Telling Us About The Low P/E?

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

Retrospectively, the last year delivered an exceptional 107% gain to the company's bottom line. The latest three year period has also seen an excellent 286% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 1.2% per annum during the coming three years according to the dual analysts following the company. With the market predicted to deliver 20% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Jindal Saw's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Jindal Saw's P/E?

Jindal Saw's recent share price jump still sees its P/E sitting firmly flat on the ground. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Jindal Saw maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Jindal Saw that you should be aware of.

Of course, you might also be able to find a better stock than Jindal Saw. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.