Nikita Papers Limited (NSE:NIKITA) Stock Catapults 25% Though Its Price And Business Still Lag The Market

Despite an already strong run, Nikita Papers Limited (NSE:NIKITA) shares have been powering on, with a gain of 25% in the last thirty days. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Even after such a large jump in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 28x, you may still consider Nikita Papers as an attractive investment with its 14.9x 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.

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Earnings have risen at a steady rate over the last year for Nikita Papers, which is generally not a bad outcome. One possibility is that the P/E is low because investors think this good earnings growth might actually underperform the broader market in the near future. 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.

See our latest analysis for Nikita Papers

Although there are no analyst estimates available for Nikita Papers, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For Nikita Papers?

The only time you'd be truly comfortable seeing a P/E as low as Nikita Papers' is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a decent 3.1% gain to the company's bottom line. Pleasingly, EPS has also lifted 32% in aggregate from three years ago, partly 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.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why Nikita Papers is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

Nikita Papers' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Nikita Papers maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware Nikita Papers is showing 3 warning signs in our investment analysis, and 2 of those can't be ignored.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.