Rajratan Global Wire Limited (NSE:RAJRATAN) Might Not Be As Mispriced As It Looks After Plunging 26%

Unfortunately for some shareholders, the Rajratan Global Wire Limited (NSE:RAJRATAN) share price has dived 26% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 50% share price drop.

Although its price has dipped substantially, it's still not a stretch to say that Rajratan Global Wire's price-to-earnings (or "P/E") ratio of 25.8x right now seems quite "middle-of-the-road" compared to the market in India, where the median P/E ratio is around 25x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

While the market has experienced earnings growth lately, Rajratan Global Wire's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Rajratan Global Wire

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

Rajratan Global Wire's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with 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 11%. The last three years don't look nice either as the company has shrunk EPS by 42% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 37% during the coming year according to the four 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 curious that Rajratan Global Wire's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On Rajratan Global Wire's P/E

Following Rajratan Global Wire's share price tumble, its P/E is now hanging on to the median market P/E. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Rajratan Global Wire currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

You need to take note of risks, for example - Rajratan Global Wire has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

If you're unsure about the strength of Rajratan Global Wire'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.