Mold-Tek Technologies Limited's (NSE:MOLDTECH) Shares Climb 28% But Its Business Is Yet to Catch Up

Despite an already strong run, Mold-Tek Technologies Limited (NSE:MOLDTECH) shares have been powering on, with a gain of 28% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 38% over that time.

Following the firm bounce in price, given around half the companies in India have price-to-earnings ratios (or "P/E's") below 29x, you may consider Mold-Tek Technologies as a stock to potentially avoid with its 39.4x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

For example, consider that Mold-Tek Technologies' financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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.

How Is Mold-Tek Technologies' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Mold-Tek Technologies' is when the company's growth is on track to outshine the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 57%. As a result, earnings from three years ago have also fallen 10% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Comparing that to the market, which is predicted to deliver 23% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we find it concerning that Mold-Tek Technologies is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

What We Can Learn From Mold-Tek Technologies' P/E?

Mold-Tek Technologies' P/E is getting right up there since its shares have risen strongly. 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.

We've established that Mold-Tek Technologies currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You should always think about risks. Case in point, we've spotted 4 warning signs for Mold-Tek Technologies you should be aware of.

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.