Improved Earnings Required Before Radhika Jeweltech Limited (NSE:RADHIKAJWE) Shares Find Their Feet

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 28x, you may consider Radhika Jeweltech Limited (NSE:RADHIKAJWE) as an attractive investment with its 18.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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With earnings growth that's exceedingly strong of late, Radhika Jeweltech has been doing very well. 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.

See our latest analysis for Radhika Jeweltech

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

Is There Any Growth For Radhika Jeweltech?

In order to justify its P/E ratio, Radhika Jeweltech would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 33% gain to the company's bottom line. The latest three year period has also seen an excellent 62% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 24% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Radhika Jeweltech is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From Radhika Jeweltech's P/E?

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.

As we suspected, our examination of Radhika Jeweltech revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Radhika Jeweltech with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might also be able to find a better stock than Radhika Jeweltech. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.