Sportking India Limited (NSE:SPORTKING) Doing What It Can To Lift Shares

With a price-to-earnings (or "P/E") ratio of 3x Sportking India Limited (NSE:SPORTKING) may be sending very bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 21x and even P/E's higher than 45x 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.

Sportking India certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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.

Check out our latest analysis for Sportking India

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 Sportking India's earnings, revenue and cash flow.

How Is Sportking India's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Sportking India's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 156% gain to the company's bottom line. Pleasingly, EPS has also lifted 1,760% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is only predicted to deliver 20% 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 Sportking India 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.

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.

Our examination of Sportking India 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. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Sportking India, and understanding them should be part of your investment process.

If you're unsure about the strength of Sportking India'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.