Fiem Industries Limited (NSE:FIEMIND) Doing What It Can To Lift Shares

Fiem Industries Limited's (NSE:FIEMIND) price-to-earnings (or "P/E") ratio of 7.6x might make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 13x and even P/E's above 30x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's exceedingly strong of late, Fiem Industries has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Fiem Industries

Does Fiem Industries Have A Relatively High Or Low P/E For Its Industry?

It's plausible that Fiem Industries' low P/E ratio could be a result of tendencies within its own industry. It turns out the Auto Components industry in general has a P/E ratio higher than the market, as the graphic below shows. So it appears the company's ratio isn't currently influenced by these industry numbers whatsoever. Ordinarily, the majority of companies' P/E's would be lifted by the general conditions within the Auto Components industry. Nevertheless, the company's P/E should be primarily influenced by its own financial performance.

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

How Is Fiem Industries' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Fiem Industries' is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 34% last year. Pleasingly, EPS has also lifted 116% 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.

Comparing that to the market, which is predicted to shrink 6.7% in the next 12 months, the company's positive momentum based on recent medium-term earnings results is a bright spot for the moment.

With this information, we find it very odd that Fiem Industries is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Fiem Industries' P/E

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.

Our examination of Fiem Industries revealed its growing earnings over the medium-term aren't contributing to its P/E anywhere near as much as we would have predicted, given the market is set to shrink. We think potential risks might be placing significant pressure on the P/E ratio and share price. Perhaps there is some hesitation about the company's ability to stay its recent course and swim against the current of the broader market turmoil. It appears many are indeed anticipating earnings instability, because this relative performance should normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Fiem Industries, and understanding them should be part of your investment process.

You might be able to find a better investment than Fiem Industries. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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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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