Investors Aren't Buying Radiant Cash Management Services Limited's (NSE:RADIANTCMS) Earnings

Radiant Cash Management Services Limited's (NSE:RADIANTCMS) price-to-earnings (or "P/E") ratio of 14.5x 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 25x and even P/E's above 49x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

For instance, Radiant Cash Management Services' receding earnings in recent times would have to be some food for thought. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for Radiant Cash Management 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 Radiant Cash Management Services' earnings, revenue and cash flow.

How Is Radiant Cash Management Services' Growth Trending?

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

Retrospectively, the last year delivered a frustrating 9.1% decrease to the company's bottom line. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 12% in total. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Comparing that to the market, which is predicted to deliver 25% 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 Radiant Cash Management Services' P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

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.

We've established that Radiant Cash Management Services 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. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Radiant Cash Management Services that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.