Despite an already strong run, R.P.P. Infra Projects Limited (NSE:RPPINFRA) shares have been powering on, with a gain of 26% in the last thirty days. The last month tops off a massive increase of 170% in the last year.

Although its price has surged higher, R.P.P. Infra Projects may still be sending very bullish signals at the moment with its price-to-earnings (or “P/E”) ratio of 10x, since almost half of all companies in India have P/E ratios greater than 33x and even P/E’s higher than 64x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it’s justified.

R.P.P. Infra Projects 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.

See our latest analysis for R.P.P. Infra Projects

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

Does Growth Match The Low P/E?

There’s an inherent assumption that a company should far underperform the market for P/E ratios like R.P.P. Infra Projects’ to be considered reasonable.

Retrospectively, the last year delivered an exceptional 69% gain to the company’s bottom line. The strong recent performance means it was also able to grow EPS by 173% in total over the last three years. Therefore, it’s fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market’s one-year forecast for expansion of 25% shows it’s noticeably more attractive on an annualised basis.

With this information, we find it odd that R.P.P. Infra Projects 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.

The Final Word

Shares in R.P.P. Infra Projects are going to need a lot more upward momentum to get the company’s P/E out of its slump. 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 R.P.P. Infra Projects 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. 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.

Having said that, be aware R.P.P. Infra Projects is showing 1 warning sign in our investment analysis, you should know about.

You might be able to find a better investment than R.P.P. Infra Projects. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com