Further Upside For Eimco Elecon (India) Limited (NSE:EIMCOELECO) Shares Could Introduce Price Risks After 27% Bounce

Eimco Elecon (India) Limited (NSE:EIMCOELECO) shares have had a really impressive month, gaining 27% after a shaky period beforehand. The last 30 days were the cherry on top of the stock's 380% gain in the last year, which is nothing short of spectacular.

Even after such a large jump in price, there still wouldn't be many who think Eimco Elecon (India)'s price-to-earnings (or "P/E") ratio of 30.5x is worth a mention when the median P/E in India is similar at about 30x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Recent times have been quite advantageous for Eimco Elecon (India) as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Eimco Elecon (India)

Although there are no analyst estimates available for Eimco Elecon (India), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Growth For Eimco Elecon (India)?

In order to justify its P/E ratio, Eimco Elecon (India) would need to produce growth that's similar to the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 148% last year. Pleasingly, EPS has also lifted 175% 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 only predicted to deliver 24% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's curious that Eimco Elecon (India)'s P/E sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Its shares have lifted substantially and now Eimco Elecon (India)'s P/E is also back up to the market median. 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.

Our examination of Eimco Elecon (India) revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

Having said that, be aware Eimco Elecon (India) is showing 1 warning sign in our investment analysis, you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.