CyberTech Systems and Software Limited (NSE:CYBERTECH) Screens Well But There Might Be A Catch

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 16x, you may consider CyberTech Systems and Software Limited (NSE:CYBERTECH) as an attractive investment with its 11.9x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

CyberTech Systems and Software has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is low because investors think this respectable 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 CyberTech Systems and Software

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 CyberTech Systems and Software's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like CyberTech Systems and Software's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 20%. Pleasingly, EPS has also lifted 44% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

It's interesting to note that the rest of the market is similarly expected to grow by 12% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we find it odd that CyberTech Systems and Software is trading at a P/E lower than the market. It may be that most investors are not convinced the company can maintain recent growth rates.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of CyberTech Systems and Software revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look similar to current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

You always need to take note of risks, for example - CyberTech Systems and Software has 4 warning signs we think you should be aware of.

Of course, you might also be able to find a better stock than CyberTech Systems and Software. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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This article by Simply Wall St is general in nature. 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.
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