Some Confidence Is Lacking In Raghav Productivity Enhancers Limited (NSE:RPEL) As Shares Slide 26%

Unfortunately for some shareholders, the Raghav Productivity Enhancers Limited (NSE:RPEL) share price has dived 26% in the last thirty days, prolonging recent pain. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

Although its price has dipped substantially, Raghav Productivity Enhancers may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 61.8x, since almost half of all companies in India have P/E ratios under 24x and even P/E's lower than 14x 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 so lofty.

With earnings growth that's exceedingly strong of late, Raghav Productivity Enhancers has been doing very well. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Raghav Productivity Enhancers

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

Is There Enough Growth For Raghav Productivity Enhancers?

The only time you'd be truly comfortable seeing a P/E as steep as Raghav Productivity Enhancers' is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 38%. Pleasingly, EPS has also lifted 106% in aggregate from three years ago, thanks to the last 12 months of growth. 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 about the same on an annualised basis.

In light of this, it's curious that Raghav Productivity Enhancers' P/E sits above the majority of other companies. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as a continuation of recent earnings trends would weigh down the share price eventually.

The Final Word

A significant share price dive has done very little to deflate Raghav Productivity Enhancers' very lofty P/E. 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 Raghav Productivity Enhancers revealed its three-year earnings trends aren't impacting its high P/E as much as we would have predicted, given they look similar to current market expectations. Right now we are uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Raghav Productivity Enhancers with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Raghav Productivity Enhancers, 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.