Even With A 27% Surge, Cautious Investors Are Not Rewarding Shradha Infraprojects Limited's (NSE:SHRADHA) Performance Completely

The Shradha Infraprojects Limited (NSE:SHRADHA) share price has done very well over the last month, posting an excellent gain of 27%. The last month tops off a massive increase of 112% in the last year.

In spite of the firm bounce in price, Shradha Infraprojects may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 20.3x, since almost half of all companies in India have P/E ratios greater than 30x and even P/E's higher than 57x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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As an illustration, earnings have deteriorated at Shradha Infraprojects over the last year, which is not ideal at all. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. 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.

Check out our latest analysis for Shradha Infraprojects

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 Shradha Infraprojects' earnings, revenue and cash flow.

Is There Any Growth For Shradha Infraprojects?

There's an inherent assumption that a company should underperform the market for P/E ratios like Shradha Infraprojects' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 1.2% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 1,153% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 23% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that Shradha Infraprojects is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Shradha Infraprojects' P/E?

Shradha Infraprojects' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Shradha Infraprojects revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Shradha Infraprojects (of which 1 can't be ignored!) you should know about.

You might be able to find a better investment than Shradha Infraprojects. 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.