Investors Still Aren't Entirely Convinced By V-MARC India Limited's (NSE:VMARCIND) Earnings Despite 29% Price Jump

V-MARC India Limited (NSE:VMARCIND) shareholders are no doubt pleased to see that the share price has bounced 29% in the last month, although it is still struggling to make up recently lost ground. The annual gain comes to 137% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, V-MARC India's price-to-earnings (or "P/E") ratio of 19.9x might still 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 28x and even P/E's above 52x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Recent times have been quite advantageous for V-MARC India as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for V-MARC India

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 V-MARC India's earnings, revenue and cash flow.

How Is V-MARC India's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like V-MARC India's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 142% last year. The strong recent performance means it was also able to grow EPS by 594% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that V-MARC India's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On V-MARC India's P/E

The latest share price surge wasn't enough to lift V-MARC India's P/E close 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.

Our examination of V-MARC India revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for V-MARC India you should be aware of, and 1 of them shouldn't be ignored.

Of course, you might also be able to find a better stock than V-MARC India. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.