Emkay Global Financial Services Limited (NSE:EMKAY) Not Doing Enough For Some Investors As Its Shares Slump 27%

Emkay Global Financial Services Limited (NSE:EMKAY) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 45%, which is great even in a bull market.

Following the heavy fall in price, Emkay Global Financial Services may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.6x, since almost half of all companies in India have P/E ratios greater than 30x and even P/E's higher than 57x 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.

Emkay Global Financial Services 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 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.

See our latest analysis for Emkay Global Financial Services

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

How Is Emkay Global Financial Services' Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 291% last year. Pleasingly, EPS has also lifted 30% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

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.

In light of this, it's understandable that Emkay Global Financial Services' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

Having almost fallen off a cliff, Emkay Global Financial Services' share price has pulled its P/E way down as well. 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 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. 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.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Emkay Global Financial Services that you should be aware of.

Of course, you might also be able to find a better stock than Emkay Global Financial Services. 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.