Market Might Still Lack Some Conviction On Datamatics Global Services Limited (NSE:DATAMATICS) Even After 27% Share Price Boost

Datamatics Global Services Limited (NSE:DATAMATICS) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. The last month tops off a massive increase of 112% in the last year.

In spite of the firm bounce in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 32x, you may still consider Datamatics Global Services as an attractive investment with its 18.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Earnings have risen firmly for Datamatics Global Services recently, which is pleasing to see. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

See our latest analysis for Datamatics Global Services

Although there are no analyst estimates available for Datamatics Global Services, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For Datamatics Global Services?

Datamatics Global Services' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered an exceptional 18% gain to the company's bottom line. Pleasingly, EPS has also lifted 228% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 24% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that Datamatics Global Services' P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Datamatics Global Services' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Datamatics Global Services 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.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Datamatics Global Services that you need to be mindful of.

You might be able to find a better investment than Datamatics Global Services. 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.