Earnings Tell The Story For Jubilant Ingrevia Limited (NSE:JUBLINGREA) As Its Stock Soars 29%

Jubilant Ingrevia Limited (NSE:JUBLINGREA) shares have had a really impressive month, gaining 29% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 38% in the last year.

Since its price has surged higher, Jubilant Ingrevia may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 42.7x, since almost half of all companies in India have P/E ratios under 31x and even P/E's lower than 17x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Jubilant Ingrevia could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

In order to justify its P/E ratio, Jubilant Ingrevia would need to produce impressive growth in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 36%. The last three years don't look nice either as the company has shrunk EPS by 38% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 59% over the next year. Meanwhile, the rest of the market is forecast to only expand by 24%, which is noticeably less attractive.

With this information, we can see why Jubilant Ingrevia is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Jubilant Ingrevia shares have received a push in the right direction, but its P/E is elevated too. 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 Jubilant Ingrevia maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Jubilant Ingrevia that you should be aware of.

If you're unsure about the strength of Jubilant Ingrevia's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.