JSW Infrastructure Limited's (NSE:JSWINFRA) Popularity With Investors Is Under Threat From Overpricing

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 27x, you may consider JSW Infrastructure Limited (NSE:JSWINFRA) as a stock to potentially avoid with its 40.8x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's superior to most other companies of late, JSW Infrastructure has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for JSW Infrastructure

If you'd like to see what analysts are forecasting going forward, you should check out our free report on JSW Infrastructure.

How Is JSW Infrastructure's Growth Trending?

In order to justify its P/E ratio, JSW Infrastructure would need to produce impressive growth in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 36%. Pleasingly, EPS has also lifted 313% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 10% per year during the coming three years according to the twelve analysts following the company. That's shaping up to be materially lower than the 19% per year growth forecast for the broader market.

With this information, we find it concerning that JSW Infrastructure is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On JSW Infrastructure's P/E

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of JSW Infrastructure's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for JSW Infrastructure with six simple checks.

You might be able to find a better investment than JSW Infrastructure. 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.