The Market Lifts Shradha Infraprojects Limited (NSE:SHRADHA) Shares 41% But It Can Do More

Despite an already strong run, Shradha Infraprojects Limited (NSE:SHRADHA) shares have been powering on, with a gain of 41% in the last thirty days. The annual gain comes to 134% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 33x, you may still consider Shradha Infraprojects as a highly attractive investment with its 12.6x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Shradha Infraprojects certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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.

View our latest analysis for Shradha Infraprojects

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

How Is Shradha Infraprojects' Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 31% last year. The strong recent performance means it was also able to grow EPS by 1,009% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% 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.

The Final Word

Shares in Shradha Infraprojects are going to need a lot more upward momentum to get the company's P/E out of its slump. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the 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. 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.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Shradha Infraprojects (2 make us uncomfortable!) that you need to be mindful of.

If you're unsure about the strength of Shradha Infraprojects' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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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