Investors Still Aren't Entirely Convinced By Ratnaveer Precision Engineering Limited's (NSE:RATNAVEER) Earnings Despite 26% Price Jump

Ratnaveer Precision Engineering Limited (NSE:RATNAVEER) shares have continued their recent momentum with a 26% gain in the last month alone. 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.

Although its price has surged higher, Ratnaveer Precision Engineering's price-to-earnings (or "P/E") ratio of 23.3x might still make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 33x and even P/E's above 64x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

The recent earnings growth at Ratnaveer Precision Engineering would have to be considered satisfactory if not spectacular. It might be that many expect the respectable earnings performance to degrade, which has repressed the P/E. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

See our latest analysis for Ratnaveer Precision Engineering

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Ratnaveer Precision Engineering will help you shine a light on its historical performance.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Ratnaveer Precision Engineering would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a worthy increase of 4.8%. This was backed up an excellent period prior to see EPS up by 303% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

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

With this information, we find it odd that Ratnaveer Precision Engineering is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Ratnaveer Precision Engineering's P/E

Despite Ratnaveer Precision Engineering's shares building up a head of steam, its P/E still lags most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Ratnaveer Precision Engineering revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

You need to take note of risks, for example - Ratnaveer Precision Engineering has 4 warning signs (and 2 which are significant) we think you should know about.

Of course, you might also be able to find a better stock than Ratnaveer Precision Engineering. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com