The Price Is Right For Anant Raj Limited (NSE:ANANTRAJ) Even After Diving 34%

Anant Raj Limited (NSE:ANANTRAJ) shares have had a horrible month, losing 34% after a relatively good period beforehand. Still, a bad month hasn't completely ruined the past year with the stock gaining 78%, which is great even in a bull market.

Although its price has dipped substantially, given close to half the companies in India have price-to-earnings ratios (or "P/E's") below 29x, you may still consider Anant Raj as a stock to avoid entirely with its 54.7x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Anant Raj as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Anant Raj

Want the full picture on analyst estimates for the company? Then our free report on Anant Raj will help you uncover what's on the horizon.

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

Anant Raj'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.

Taking a look back first, we see that the company grew earnings per share by an impressive 65% last year. The latest three year period has also seen an excellent 696% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 34% each year as estimated by the three analysts watching the company. With the market only predicted to deliver 19% each year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Anant Raj's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Anant Raj's P/E

A significant share price dive has done very little to deflate Anant Raj's 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.

As we suspected, our examination of Anant Raj's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Anant Raj that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.