There's No Escaping Kellton Tech Solutions Limited's (NSE:KELLTONTEC) Muted Earnings Despite A 128% Share Price Rise

Despite an already strong run, Kellton Tech Solutions Limited (NSE:KELLTONTEC) shares have been powering on, with a gain of 128% in the last thirty days. The last month tops off a massive increase of 143% in the last year.

Although its price has surged higher, Kellton Tech Solutions' price-to-earnings (or "P/E") ratio of 7.1x might still make it look like a strong buy right now compared to the market in India, where around half of the companies have P/E ratios above 17x and even P/E's above 41x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

For example, consider that Kellton Tech Solutions' financial performance has been poor lately as it's earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, 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.

View our latest analysis for Kellton Tech Solutions

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 Kellton Tech Solutions' earnings, revenue and cash flow.

Is There Any Growth For Kellton Tech Solutions?

In order to justify its P/E ratio, Kellton Tech Solutions would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a frustrating 9.9% decrease to the company's bottom line. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 15% in total. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 11% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Kellton Tech Solutions' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

Shares in Kellton Tech Solutions are going to need a lot more upward momentum to get the company's P/E out of its slump. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Kellton Tech Solutions maintains its low P/E on the weakness of its recentthree-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Kellton Tech Solutions that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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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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