DCG Cables & Wires Limited's (NSE:DCG) Subdued P/E Might Signal An Opportunity

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 28x, you may consider DCG Cables & Wires Limited (NSE:DCG) as an attractive investment with its 17x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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As an illustration, earnings have deteriorated at DCG Cables & Wires over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

View our latest analysis for DCG Cables & Wires

Although there are no analyst estimates available for DCG Cables & Wires, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is DCG Cables & Wires' Growth Trending?

In order to justify its P/E ratio, DCG Cables & Wires would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 33% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 132% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 25% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it odd that DCG Cables & Wires is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

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 DCG Cables & Wires revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with DCG Cables & Wires (at least 1 which shouldn't be ignored), and understanding them should be part of your investment process.

If you're unsure about the strength of DCG Cables & Wires' 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.