Kalyani Steels Limited (NSE:KSL) Stock Rockets 42% But Many Are Still Ignoring The Company

Kalyani Steels Limited (NSE:KSL) shares have continued their recent momentum with a 42% gain in the last month alone. The last month tops off a massive increase of 170% in the last year.

Although its price has surged higher, Kalyani Steels' price-to-earnings (or "P/E") ratio of 14.3x 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 32x and even P/E's above 60x 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.

Kalyani Steels certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Kalyani Steels

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 Kalyani Steels' earnings, revenue and cash flow.

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

The only time you'd be truly comfortable seeing a P/E as depressed as Kalyani Steels' is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered an exceptional 52% gain to the company's bottom line. Pleasingly, EPS has also lifted 85% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

It's interesting to note that the rest of the market is similarly expected to grow by 24% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we find it odd that Kalyani Steels is trading at a P/E lower than the market. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

The Bottom Line On Kalyani Steels' P/E

Even after such a strong price move, Kalyani Steels' P/E still trails the rest of the market significantly. 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 Kalyani Steels currently trades on a lower than expected P/E since its recent three-year growth is in line with the wider market forecast. When we see average earnings with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Kalyani Steels that you should be aware of.

If these risks are making you reconsider your opinion on Kalyani Steels, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.