Take Care Before Jumping Onto V-MARC India Limited (NSE:VMARCIND) Even Though It's 26% Cheaper

To the annoyance of some shareholders, V-MARC India Limited (NSE:VMARCIND) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Still, a bad month hasn't completely ruined the past year with the stock gaining 79%, which is great even in a bull market.

Since its price has dipped substantially, V-MARC India's price-to-earnings (or "P/E") ratio of 20.3x 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 27x and even P/E's above 51x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been quite advantageous for V-MARC India as its earnings have been rising very briskly. 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.

View our latest analysis for V-MARC India

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on V-MARC India will help you shine a light on its historical performance.

How Is V-MARC India's Growth Trending?

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

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.

Comparing that to the market, which is only predicted to deliver 26% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

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 Key Takeaway

The softening of V-MARC India's shares means its P/E is now sitting at a pretty low level. 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.

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.

It is also worth noting that we have found 2 warning signs for V-MARC India (1 shouldn't be ignored!) that you need to take into consideration.

If these risks are making you reconsider your opinion on V-MARC India, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.