Pulz Electronics Limited (NSE:PULZ) Surges 27% Yet Its Low P/E Is No Reason For Excitement

Pulz Electronics Limited (NSE:PULZ) shares have had a really impressive month, gaining 27% after a shaky period beforehand. The last month tops off a massive increase of 207% in the last year.

Even after such a large jump in price, Pulz Electronics may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 21.7x, since almost half of all companies in India have P/E ratios greater than 31x and even P/E's higher than 57x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been quite advantageous for Pulz Electronics as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Pulz Electronics

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 Pulz Electronics' earnings, revenue and cash flow.

How Is Pulz Electronics' Growth Trending?

Pulz Electronics' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered an exceptional 92% 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.

Comparing that to the market, which is predicted to deliver 24% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

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.

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

The latest share price surge wasn't enough to lift Pulz Electronics' P/E close to the market median. 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.

We've established that Pulz Electronics maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Pulz Electronics (of which 1 is a bit unpleasant!) you should know about.

If you're unsure about the strength of Pulz Electronics' 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.