Investors Aren't Entirely Convinced About Future Market Networks Limited's (NSE:FMNL) Earnings

With a price-to-earnings (or "P/E") ratio of 4.8x Future Market Networks Limited (NSE:FMNL) may be sending very bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 13x and even P/E's higher than 30x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Future Market Networks 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 that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Future Market Networks

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 Future Market Networks' earnings, revenue and cash flow.

Is There Any Growth For Future Market Networks?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Future Market Networks' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 215%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

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 Future Market Networks 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 Final Word

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Future Market Networks currently trades on a much lower than expected P/E since its recent three-year earnings growth is beating forecasts for a struggling market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. 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. At least the risk of a price drop looks to be subdued, but investors think future earnings could see a lot of volatility.

Before you settle on your opinion, we've discovered 4 warning signs for Future Market Networks (1 is a bit unpleasant!) that you should be aware of.

Of course, you might also be able to find a better stock than Future Market Networks. 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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