Further Upside For Ratnaveer Precision Engineering Limited (NSE:RATNAVEER) Shares Could Introduce Price Risks After 30% Bounce

Ratnaveer Precision Engineering Limited (NSE:RATNAVEER) shareholders have had their patience rewarded with a 30% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 43% in the last year.

Although its price has surged higher, Ratnaveer Precision Engineering may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 19.2x, since almost half of all companies in India have P/E ratios greater than 28x and even P/E's higher than 54x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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Recent times have been advantageous for Ratnaveer Precision Engineering as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Ratnaveer Precision Engineering

Want the full picture on analyst estimates for the company? Then our free report on Ratnaveer Precision Engineering will help you uncover what's on the horizon.

Is There Any Growth For Ratnaveer Precision Engineering?

There's an inherent assumption that a company should underperform the market for P/E ratios like Ratnaveer Precision Engineering's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 22% last year. The strong recent performance means it was also able to grow EPS by 221% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 56% over the next year. Meanwhile, the rest of the market is forecast to only expand by 23%, which is noticeably less attractive.

With this information, we find it odd that Ratnaveer Precision Engineering is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Ratnaveer Precision Engineering's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Ratnaveer Precision Engineering currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Ratnaveer Precision Engineering with six simple checks will allow you to discover any risks that could be an issue.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.