Jaiprakash Power Ventures Limited (NSE:JPPOWER) Stock Rockets 27% But Many Are Still Ignoring The Company

Despite an already strong run, Jaiprakash Power Ventures Limited (NSE:JPPOWER) shares have been powering on, with a gain of 27% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 14% is also fairly reasonable.

Although its price has surged higher, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 30x, you may still consider Jaiprakash Power Ventures as an attractive investment with its 18.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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As an illustration, earnings have deteriorated at Jaiprakash Power Ventures over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

View our latest analysis for Jaiprakash Power Ventures

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 Jaiprakash Power Ventures' earnings, revenue and cash flow.

How Is Jaiprakash Power Ventures' Growth Trending?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 18%. Still, the latest three year period has seen an excellent 678% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

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

In light of this, it's peculiar that Jaiprakash Power Ventures' P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Despite Jaiprakash Power Ventures' shares building up a head of steam, its P/E still lags most other companies. 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.

Our examination of Jaiprakash Power Ventures revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. 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. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

You always need to take note of risks, for example - Jaiprakash Power Ventures has 1 warning sign we think you should be aware of.

You might be able to find a better investment than Jaiprakash Power Ventures. 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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