Banco Products (India) Limited (NSE:BANCOINDIA) Surges 39% Yet Its Low P/E Is No Reason For Excitement

Banco Products (India) Limited (NSE:BANCOINDIA) shares have continued their recent momentum with a 39% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 70%.

Even after such a large jump in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 32x, you may still consider Banco Products (India) as an attractive investment with its 26.1x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

It looks like earnings growth has deserted Banco Products (India) recently, which is not something to boast about. It might be that many expect the uninspiring earnings performance to worsen, which has repressed the P/E. If not, then existing shareholders may be feeling optimistic about the future direction of the share price.

View our latest analysis for Banco Products (India)

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 Banco Products (India)'s earnings, revenue and cash flow.

How Is Banco Products (India)'s Growth Trending?

In order to justify its P/E ratio, Banco Products (India) would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. Still, the latest three year period has seen an excellent 91% overall rise in EPS, in spite of its uninspiring short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 27% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Banco Products (India)'s 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 Final Word

Despite Banco Products (India)'s shares building up a head of steam, its P/E still lags most other companies. 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.

As we suspected, our examination of Banco Products (India) revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 1 warning sign for Banco Products (India) that we have uncovered.

If you're unsure about the strength of Banco Products (India)'s business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.