Pulz Electronics Limited (NSE:PULZ) Held Back By Insufficient Growth Even After Shares Climb 77%

Despite an already strong run, Pulz Electronics Limited (NSE:PULZ) shares have been powering on, with a gain of 77% in the last thirty days. The annual gain comes to 140% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, Pulz Electronics may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 26.4x, since almost half of all companies in India have P/E ratios greater than 35x and even P/E's higher than 66x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Pulz Electronics has been doing a good job lately as it's been growing earnings at a solid pace. 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.

View 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?

In order to justify its P/E ratio, Pulz Electronics would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 23% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Pulz Electronics is trading at a P/E lower than the market. 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

Pulz Electronics' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Pulz Electronics revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Pulz Electronics (1 can't be ignored!) that you need to be mindful of.

Of course, you might also be able to find a better stock than Pulz Electronics. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.