Nasdaq
华尔街日报Pinning Down JSW Infrastructure Limited's (NSE:JSWINFRA) P/E Is Difficult Right Now
JSW Infrastructure Limited's (NSE:JSWINFRA) price-to-earnings (or "P/E") ratio of 36.5x might make it look like a sell right now compared to the market in India, where around half of the companies have P/E ratios below 25x and even P/E's below 14x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.
With earnings growth that's superior to most other companies of late, JSW Infrastructure has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.
View our latest analysis for JSW Infrastructure
What Are Growth Metrics Telling Us About The High P/E?
In order to justify its P/E ratio, JSW Infrastructure would need to produce impressive growth in excess of the market.
Retrospectively, the last year delivered an exceptional 26% gain to the company's bottom line. Still, incredibly EPS has fallen 84% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Turning to the outlook, the next three years should generate growth of 9.4% per annum as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 20% per annum, which is noticeably more attractive.
With this information, we find it concerning that JSW Infrastructure is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.
The Key Takeaway
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.
We've established that JSW Infrastructure currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. 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.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with JSW Infrastructure, and understanding should be part of your investment process.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.
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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.