Genus Power Infrastructures Limited's (NSE:GENUSPOWER) 27% Jump Shows Its Popularity With Investors

Despite an already strong run, Genus Power Infrastructures Limited (NSE:GENUSPOWER) shares have been powering on, with a gain of 27% in the last thirty days. Looking further back, the 15% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Since its price has surged higher, given close to half the companies in India have price-to-earnings ratios (or "P/E's") below 27x, you may consider Genus Power Infrastructures as a stock to avoid entirely with its 49.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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With earnings growth that's superior to most other companies of late, Genus Power Infrastructures has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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Is There Enough Growth For Genus Power Infrastructures?

In order to justify its P/E ratio, Genus Power Infrastructures would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 249%. The strong recent performance means it was also able to grow EPS by 174% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 39% over the next year. With the market only predicted to deliver 23%, the company is positioned for a stronger earnings result.

With this information, we can see why Genus Power Infrastructures is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

The strong share price surge has got Genus Power Infrastructures' P/E rushing to great heights as well. 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.

As we suspected, our examination of Genus Power Infrastructures' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Genus Power Infrastructures with six simple checks on some of these key factors.

If these risks are making you reconsider your opinion on Genus Power Infrastructures, 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.