Even With A 67% Surge, Cautious Investors Are Not Rewarding Radhika Jeweltech Limited's (NSE:RADHIKAJWE) Performance Completely

Despite an already strong run, Radhika Jeweltech Limited (NSE:RADHIKAJWE) shares have been powering on, with a gain of 67% in the last thirty days. The last month tops off a massive increase of 244% in the last year.

Although its price has surged higher, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 35x, you may still consider Radhika Jeweltech as an attractive investment with its 30.6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Radhika Jeweltech certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong 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 Radhika Jeweltech

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 Radhika Jeweltech's earnings, revenue and cash flow.

Is There Any Growth For Radhika Jeweltech?

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

Retrospectively, the last year delivered an exceptional 47% gain to the company's bottom line. Pleasingly, EPS has also lifted 87% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

It's interesting to note that the rest of the market is similarly expected to grow by 25% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Radhika Jeweltech's P/E sits below the majority of other companies. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

The Final Word

The latest share price surge wasn't enough to lift Radhika Jeweltech's P/E close to the market median. 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 Radhika Jeweltech currently trades on a lower than expected P/E since its recent three-year growth is in line with the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

Before you settle on your opinion, we've discovered 1 warning sign for Radhika Jeweltech that you should be aware of.

You might be able to find a better investment than Radhika Jeweltech. 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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.