Why Investors Shouldn't Be Surprised By Jeena Sikho Lifecare Limited's (NSE:JSLL) 31% Share Price Surge

Jeena Sikho Lifecare Limited (NSE:JSLL) shareholders would be excited to see that the share price has had a great month, posting a 31% gain and recovering from prior weakness. The annual gain comes to 138% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, Jeena Sikho Lifecare may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 50.9x, since almost half of all companies in India have P/E ratios under 32x and even P/E's lower than 18x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times have been quite advantageous for Jeena Sikho Lifecare as its earnings have been rising very briskly. 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Jeena Sikho Lifecare

Although there are no analyst estimates available for Jeena Sikho Lifecare, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The High P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 102% last year. The latest three year period has also seen an excellent 398% overall rise in EPS, aided by its short-term performance. 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 26% 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 Final Word

The strong share price surge has got Jeena Sikho Lifecare's P/E rushing to great heights as well. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Jeena Sikho Lifecare maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. 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.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Jeena Sikho Lifecare (1 is a bit unpleasant!) that you should be aware of before investing here.

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.