Emkay Global Financial Services Limited (NSE:EMKAY) Held Back By Insufficient Growth Even After Shares Climb 33%

Emkay Global Financial Services Limited (NSE:EMKAY) shareholders would be excited to see that the share price has had a great month, posting a 33% gain and recovering from prior weakness. The annual gain comes to 131% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, Emkay Global Financial Services' price-to-earnings (or "P/E") ratio of 27.4x might still make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 32x and even P/E's above 60x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

It looks like earnings growth has deserted Emkay Global Financial Services recently, which is not something to boast about. One possibility is that the P/E is low because investors think this benign earnings growth rate will likely underperform the broader market in the near future. If not, then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for Emkay Global Financial Services

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 Emkay Global Financial Services' earnings, revenue and cash flow.

How Is Emkay Global Financial Services' Growth Trending?

In order to justify its P/E ratio, Emkay Global Financial Services would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. Likewise, not much has changed from three years ago as earnings have been stuck during that whole time. Therefore, it's fair to say that earnings growth has definitely eluded the company recently.

This is in contrast to the rest of the market, which is expected to grow by 24% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Emkay Global Financial Services is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Final Word

The latest share price surge wasn't enough to lift Emkay Global Financial Services' P/E close to the market median. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Emkay Global Financial Services 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. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

You need to take note of risks, for example - Emkay Global Financial Services has 3 warning signs (and 1 which is significant) we think you should know about.

If these risks are making you reconsider your opinion on Emkay Global Financial Services, 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.