Sentiment Still Eluding Jindal Steel & Power Limited (NSE:JINDALSTEL)

Jindal Steel & Power Limited's (NSE:JINDALSTEL) price-to-earnings (or "P/E") ratio of 19.8x 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 30x and even P/E's above 55x 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 limited.

Jindal Steel & Power hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Jindal Steel & Power

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jindal Steel & Power.

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

In order to justify its P/E ratio, Jindal Steel & Power would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 25%. The last three years don't look nice either as the company has shrunk EPS by 53% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 60% during the coming year according to the analysts following the company. That's shaping up to be materially higher than the 25% growth forecast for the broader market.

In light of this, it's peculiar that Jindal Steel & Power'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.

The Bottom Line On Jindal Steel & Power'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 Jindal Steel & Power 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. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Jindal Steel & Power with six simple checks.

You might be able to find a better investment than Jindal Steel & Power. 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.