Investors Appear Satisfied With Jeena Sikho Lifecare Limited's (NSE:JSLL) Prospects As Shares Rocket 29%

Jeena Sikho Lifecare Limited (NSE:JSLL) shares have had a really impressive month, gaining 29% after a shaky period beforehand. The annual gain comes to 155% following the latest surge, making investors sit up and take notice.

After such a large jump in price, Jeena Sikho Lifecare's price-to-earnings (or "P/E") ratio of 75.9x might make it look like a strong sell right now compared to the market in India, where around half of the companies have P/E ratios below 29x and even P/E's below 16x are quite common. 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.

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Jeena Sikho Lifecare certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Jeena Sikho Lifecare

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 Jeena Sikho Lifecare's earnings, revenue and cash flow.

Does Growth Match The High P/E?

Jeena Sikho Lifecare's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered an exceptional 31% gain to the company's bottom line. Pleasingly, EPS has also lifted 491% 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.

This is in contrast to the rest of the market, which is expected to grow by 23% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Jeena Sikho Lifecare is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Bottom Line On Jeena Sikho Lifecare's P/E

Shares in Jeena Sikho Lifecare have built up some good momentum lately, which has really inflated its P/E. 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.

As we suspected, our examination of Jeena Sikho Lifecare revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Jeena Sikho Lifecare (at least 1 which is a bit concerning), and understanding them should be part of your investment process.

You might be able to find a better investment than Jeena Sikho Lifecare. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.