Investors Still Aren't Entirely Convinced By Marathon Nextgen Realty Limited's (NSE:MARATHON) Earnings Despite 44% Price Jump

Marathon Nextgen Realty Limited (NSE:MARATHON) shares have had a really impressive month, gaining 44% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 85% in the last year.

Although its price has surged higher, Marathon Nextgen Realty may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 18.6x, since almost half of all companies in India have P/E ratios greater than 33x and even P/E's higher than 63x 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 limited.

With earnings growth that's exceedingly strong of late, Marathon Nextgen Realty has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Marathon Nextgen Realty

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

How Is Marathon Nextgen Realty's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Marathon Nextgen Realty's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 32% gain to the company's bottom line. Pleasingly, EPS has also lifted 884% 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 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Marathon Nextgen Realty's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Marathon Nextgen Realty's P/E

Marathon Nextgen Realty's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Marathon Nextgen Realty currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 3 warning signs for Marathon Nextgen Realty you should be aware of, and 1 of them is a bit concerning.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

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