Further Upside For Aditya Birla Money Limited (NSE:BIRLAMONEY) Shares Could Introduce Price Risks After 26% Bounce

Those holding Aditya Birla Money Limited (NSE:BIRLAMONEY) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The annual gain comes to 128% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, Aditya Birla Money may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 15x, since almost half of all companies in India have P/E ratios greater than 31x and even P/E's higher than 58x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Aditya Birla Money 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 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.

Check out our latest analysis for Aditya Birla Money

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

Is There Any Growth For Aditya Birla Money?

The only time you'd be truly comfortable seeing a P/E as depressed as Aditya Birla Money's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered an exceptional 28% gain to the company's bottom line. Pleasingly, EPS has also lifted 193% 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 24% 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 Aditya Birla Money 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 Bottom Line On Aditya Birla Money's P/E

Even after such a strong price move, Aditya Birla Money's P/E still trails the rest of the market significantly. 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.

We've established that Aditya Birla Money currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. 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.

It is also worth noting that we have found 2 warning signs for Aditya Birla Money (1 can't be ignored!) that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.