Marathon Nextgen Realty Limited (NSE:MARATHON) Soars 30% But It's A Story Of Risk Vs Reward

Marathon Nextgen Realty Limited (NSE:MARATHON) shares have had a really impressive month, gaining 30% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 91% in the last year.

In spite of the firm bounce in price, Marathon Nextgen Realty's price-to-earnings (or "P/E") ratio of 18.6x might still make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 32x and even P/E's above 58x 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 limited.

The earnings growth achieved at Marathon Nextgen Realty over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

See our latest analysis for Marathon Nextgen Realty

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 Marathon Nextgen Realty's 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.

If we review the last year of earnings growth, the company posted a worthy increase of 9.2%. This was backed up an excellent period prior to see EPS up by 673% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

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. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Despite Marathon Nextgen Realty's shares building up a head of steam, its P/E still lags most other companies. 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.

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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Marathon Nextgen Realty that you should be aware of.

If these risks are making you reconsider your opinion on Marathon Nextgen Realty, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.