There's No Escaping Vaswani Industries Limited's (NSE:VASWANI) Muted Earnings Despite A 30% Share Price Rise

Despite an already strong run, Vaswani Industries Limited (NSE:VASWANI) shares have been powering on, with a gain of 30% in the last thirty days. The last month tops off a massive increase of 132% in the last year.

In spite of the firm bounce in price, Vaswani Industries may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 23.3x, since almost half of all companies in India have P/E ratios greater than 35x and even P/E's higher than 66x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

The earnings growth achieved at Vaswani Industries over the last year would be more than acceptable for most companies. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Check out our latest analysis for Vaswani Industries

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Vaswani Industries' earnings, revenue and cash flow.

Is There Any Growth For Vaswani Industries?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 30% last year. The strong recent performance means it was also able to grow EPS by 57% in total over the last three years. 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 26% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why Vaswani Industries is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Despite Vaswani Industries' shares building up a head of steam, its P/E still lags most other companies. 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 Vaswani Industries 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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Vaswani Industries (1 is a bit unpleasant!) that you need to be mindful of.

If you're unsure about the strength of Vaswani Industries' 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.