Prestige Estates Projects Limited (NSE:PRESTIGE) Stock Catapults 27% Though Its Price And Business Still Lag The Market

Despite an already strong run, Prestige Estates Projects Limited (NSE:PRESTIGE) shares have been powering on, with a gain of 27% in the last thirty days. The annual gain comes to 140% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, Prestige Estates Projects' price-to-earnings (or "P/E") ratio of 26.1x 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 30x and even P/E's above 55x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings growth that's superior to most other companies of late, Prestige Estates Projects has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Prestige Estates Projects

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Prestige Estates Projects.

Is There Any Growth For Prestige Estates Projects?

Prestige Estates Projects' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 25%. The latest three year period has also seen an excellent 603% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the analysts covering the company suggest earnings growth is heading into negative territory, declining 5.7% each year over the next three years. Meanwhile, the broader market is forecast to expand by 19% per year, which paints a poor picture.

With this information, we are not surprised that Prestige Estates Projects is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Prestige Estates Projects' P/E?

The latest share price surge wasn't enough to lift Prestige Estates Projects' P/E close to the market median. 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.

We've established that Prestige Estates Projects maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Prestige Estates Projects (2 can't be ignored!) that you need to be mindful of.

You might be able to find a better investment than Prestige Estates Projects. 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.