It's Down 27% But Pulz Electronics Limited (NSE:PULZ) Could Be Riskier Than It Looks

Unfortunately for some shareholders, the Pulz Electronics Limited (NSE:PULZ) share price has dived 27% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 39% share price drop.

Although its price has dipped substantially, Pulz Electronics may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 12x, since almost half of all companies in India have P/E ratios greater than 29x and even P/E's higher than 55x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Earnings have risen firmly for Pulz Electronics 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Pulz Electronics

Although there are no analyst estimates available for Pulz Electronics, 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 Pulz Electronics?

Pulz Electronics' P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 15%. The strong recent performance means it was also able to grow EPS by 762% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

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.

With this information, we find it odd that Pulz Electronics 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.

What We Can Learn From Pulz Electronics' P/E?

Shares in Pulz Electronics have plummeted and its P/E is now low enough to touch the ground. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Pulz Electronics 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.

You should always think about risks. Case in point, we've spotted 2 warning signs for Pulz Electronics you should be aware of, and 1 of them makes us a bit uncomfortable.

If these risks are making you reconsider your opinion on Pulz Electronics, 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.