A Piece Of The Puzzle Missing From Hybrid Financial Services Limited's (NSE:HYBRIDFIN) 30% Share Price Climb

The Hybrid Financial Services Limited (NSE:HYBRIDFIN) share price has done very well over the last month, posting an excellent gain of 30%. The last 30 days bring the annual gain to a very sharp 48%.

Even after such a large jump in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 31x, you may still consider Hybrid Financial Services as an attractive investment with its 18.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Hybrid Financial Services certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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 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 Hybrid Financial Services

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 Hybrid Financial Services' earnings, revenue and cash flow.

Is There Any Growth For Hybrid Financial Services?

The only time you'd be truly comfortable seeing a P/E as low as Hybrid Financial Services' 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 283% last year. Pleasingly, EPS has also lifted 389% 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.

Comparing that to the market, which is only predicted to deliver 25% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it odd that Hybrid Financial Services is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Hybrid Financial Services' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Hybrid Financial Services currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. 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 always need to take note of risks, for example - Hybrid Financial Services has 2 warning signs we think you should be aware of.

If you're unsure about the strength of Hybrid Financial Services' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.