Market Cool On Shradha Infraprojects Limited's (NSE:SHRADHA) Earnings

Shradha Infraprojects Limited's (NSE:SHRADHA) price-to-earnings (or "P/E") ratio of 13.6x might make it look like a strong buy right now compared to the market in India, where around half of the companies have P/E ratios above 35x and even P/E's above 66x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

The earnings growth achieved at Shradha Infraprojects over the last year would be more than acceptable for most companies. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform 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.

See our latest analysis for Shradha Infraprojects

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shradha Infraprojects will help you shine a light on its historical performance.

Is There Any Growth For Shradha Infraprojects?

In order to justify its P/E ratio, Shradha Infraprojects would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 28% gain to the company's bottom line. Pleasingly, EPS has also lifted 1,275% 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.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 26% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that Shradha Infraprojects' 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.

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

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

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.

It is also worth noting that we have found 4 warning signs for Shradha Infraprojects (2 don't sit too well with us!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Shradha Infraprojects, 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.