Little Excitement Around JK Lakshmi Cement Limited's (NSE:JKLAKSHMI) Earnings

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 34x, you may consider JK Lakshmi Cement Limited (NSE:JKLAKSHMI) as an attractive investment with its 21x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

JK Lakshmi Cement certainly has been doing a good job lately as it's been growing earnings more than most other companies. 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.

Check out our latest analysis for JK Lakshmi Cement

If you'd like to see what analysts are forecasting going forward, you should check out our free report on JK Lakshmi Cement.

How Is JK Lakshmi Cement's Growth Trending?

In order to justify its P/E ratio, JK Lakshmi Cement would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 42%. However, this wasn't enough as the latest three year period has seen a very unpleasant 4.9% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the twelve analysts covering the company suggest earnings should grow by 12% each year over the next three years. Meanwhile, the rest of the market is forecast to expand by 20% per year, which is noticeably more attractive.

With this information, we can see why JK Lakshmi Cement is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From JK Lakshmi Cement's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of JK Lakshmi Cement's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 2 warning signs for JK Lakshmi Cement that you need to take into consideration.

Of course, you might also be able to find a better stock than JK Lakshmi Cement. 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.