Marco Cables & Conductors Limited's (NSE:MARCO) 38% Jump Shows Its Popularity With Investors

Marco Cables & Conductors Limited (NSE:MARCO) shares have continued their recent momentum with a 38% gain in the last month alone. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

After such a large jump in price, given around half the companies in India have price-to-earnings ratios (or "P/E's") below 33x, you may consider Marco Cables & Conductors as a stock to potentially avoid with its 42.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

For instance, Marco Cables & Conductors' receding earnings in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Marco Cables & Conductors

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 Marco Cables & Conductors' earnings, revenue and cash flow.

Is There Enough Growth For Marco Cables & Conductors?

The only time you'd be truly comfortable seeing a P/E as high as Marco Cables & Conductors' is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered a frustrating 2.2% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 1,991% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the market, which is expected to grow by 26% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Marco Cables & Conductors' P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Bottom Line On Marco Cables & Conductors' P/E

Marco Cables & Conductors shares have received a push in the right direction, but its P/E is elevated too. 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.

We've established that Marco Cables & Conductors maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Marco Cables & Conductors (at least 2 which are potentially serious), and understanding them should be part of your investment process.

You might be able to find a better investment than Marco Cables & Conductors. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.