It's Down 26% But Arvind Port and Infra Limited (NSE:ARVINDPORT) Could Be Riskier Than It Looks

The Arvind Port and Infra Limited (NSE:ARVINDPORT) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. Longer-term, the stock has been solid despite a difficult 30 days, gaining 12% in the last year.

In spite of the heavy fall in price, Arvind Port and Infra's price-to-earnings (or "P/E") ratio of 7.3x might still 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 30x and even P/E's above 57x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

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Arvind Port and Infra 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 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.

Check out our latest analysis for Arvind Port and Infra

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 Arvind Port and Infra's earnings, revenue and cash flow.

Is There Any Growth For Arvind Port and Infra?

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

If we review the last year of earnings growth, the company posted a terrific increase of 38%. The strong recent performance means it was also able to grow EPS by 526% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 23% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Arvind Port and Infra is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Arvind Port and Infra's P/E?

Having almost fallen off a cliff, Arvind Port and Infra's share price has pulled its P/E way down as well. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Arvind Port and Infra currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. 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 Arvind Port and Infra (3 are potentially serious!) that you need to take into consideration.

If you're unsure about the strength of Arvind Port and Infra's 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.