Spectrum Talent Management Limited's (NSE:SPECTSTM) P/E Is Still On The Mark Following 32% Share Price Bounce

Despite an already strong run, Spectrum Talent Management Limited (NSE:SPECTSTM) shares have been powering on, with a gain of 32% in the last thirty days. Looking further back, the 16% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Spectrum Talent Management's P/E ratio of 31.2x, since the median price-to-earnings (or "P/E") ratio in India is also close to 34x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

For example, consider that Spectrum Talent Management's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for Spectrum Talent Management

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

Does Growth Match The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like Spectrum Talent Management's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 67%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 95% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

It's interesting to note that the rest of the market is similarly expected to grow by 26% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we can see why Spectrum Talent Management is trading at a fairly similar P/E to the market. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

The Bottom Line On Spectrum Talent Management's P/E

Spectrum Talent Management's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 Spectrum Talent Management maintains its moderate P/E off the back of its recent three-year growth being in line with the wider market forecast, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

Plus, you should also learn about these 4 warning signs we've spotted with Spectrum Talent Management (including 2 which are potentially serious).

If you're unsure about the strength of Spectrum Talent Management's 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.