Destiny Logistics & Infra Limited's (NSE:DESTINY) Share Price Boosted 25% But Its Business Prospects Need A Lift Too

Destiny Logistics & Infra Limited (NSE:DESTINY) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 99% in the last year.

In spite of the firm bounce in price, Destiny Logistics & Infra may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 27x, since almost half of all companies in India have P/E ratios greater than 34x and even P/E's higher than 64x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Earnings have risen at a steady rate over the last year for Destiny Logistics & Infra, which is generally not a bad outcome. One possibility is that the P/E is low because investors think this good 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.

Check out our latest analysis for Destiny Logistics & Infra

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

How Is Destiny Logistics & Infra's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Destiny Logistics & Infra's to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 3.0% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 77% overall drop in EPS. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 26% shows it's an unpleasant look.

With this information, we are not surprised that Destiny Logistics & Infra is trading at a P/E lower than the market. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

What We Can Learn From Destiny Logistics & Infra's P/E?

The latest share price surge wasn't enough to lift Destiny Logistics & Infra's P/E close to the market median. 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.

As we suspected, our examination of Destiny Logistics & Infra revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 5 warning signs with Destiny Logistics & Infra (at least 4 which are a bit concerning), and understanding these should be part of your investment process.

You might be able to find a better investment than Destiny Logistics & Infra. 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).

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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.