Mold-Tek Technologies Limited (NSE:MOLDTECH) Stock Rockets 31% As Investors Are Less Pessimistic Than Expected

Those holding Mold-Tek Technologies Limited (NSE:MOLDTECH) shares would be relieved that the share price has rebounded 31% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 28% over that time.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Mold-Tek Technologies' P/E ratio of 22.6x, since the median price-to-earnings (or "P/E") ratio in India is also close to 25x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

As an illustration, earnings have deteriorated at Mold-Tek Technologies over the last year, which is not ideal at all. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for Mold-Tek Technologies

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 Mold-Tek Technologies' earnings, revenue and cash flow.

Is There Some Growth For Mold-Tek Technologies?

There's an inherent assumption that a company should be matching the market for P/E ratios like Mold-Tek Technologies' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 36% decrease to the company's bottom line. Even so, admirably EPS has lifted 62% in aggregate from three years ago, notwithstanding the last 12 months. 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 predicted to deliver 25% 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 curious that Mold-Tek Technologies' P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

The Final Word

Its shares have lifted substantially and now Mold-Tek Technologies' P/E is also back up to the market median. 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 Mold-Tek Technologies currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are uncomfortable with the P/E as this earnings performance isn't likely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Mold-Tek Technologies is showing 3 warning signs in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.