Earnings Working Against PIX Transmissions Limited's (NSE:PIXTRANS) Share Price

PIX Transmissions Limited's (NSE:PIXTRANS) price-to-earnings (or "P/E") ratio of 24.2x might make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 33x and even P/E's above 62x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's exceedingly strong of late, PIX Transmissions has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for PIX Transmissions

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 PIX Transmissions' earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as PIX Transmissions' is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 44% gain to the company's bottom line. The latest three year period has also seen a 19% overall rise in EPS, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 26% 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 understandable that PIX Transmissions' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From PIX Transmissions' P/E?

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 PIX Transmissions maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware PIX Transmissions is showing 1 warning sign in our investment analysis, you should know about.

You might be able to find a better investment than PIX Transmissions. 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.