What Is Geojit Financial Services's (NSE:GEOJITFSL) P/E Ratio After Its Share Price Rocketed?

Those holding Geojit Financial Services (NSE:GEOJITFSL) shares must be pleased that the share price has rebounded 37% in the last thirty days. But unfortunately, the stock is still down by 7.0% over a quarter. But shareholders may not all be feeling jubilant, since the share price is still down 42% in the last year.

Assuming no other changes, a sharply higher share price makes a stock less attractive to potential buyers. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). So some would prefer to hold off buying when there is a lot of optimism towards a stock. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). Investors have optimistic expectations of companies with higher P/E ratios, compared to companies with lower P/E ratios.

See our latest analysis for Geojit Financial Services

How Does Geojit Financial Services's P/E Ratio Compare To Its Peers?

Geojit Financial Services's P/E of 27.72 indicates some degree of optimism towards the stock. As you can see below, Geojit Financial Services has a higher P/E than the average company (15.9) in the capital markets industry.

Its relatively high P/E ratio indicates that Geojit Financial Services shareholders think it will perform better than other companies in its industry classification.

How Growth Rates Impact P/E Ratios

Companies that shrink earnings per share quickly will rapidly decrease the 'E' in the equation. Therefore, even if you pay a low multiple of earnings now, that multiple will become higher in the future. Then, a higher P/E might scare off shareholders, pushing the share price down.

Geojit Financial Services saw earnings per share decrease by 61% last year. And over the longer term (3 years) earnings per share have decreased 12% annually. This could justify a low P/E. The company could impress by growing EPS, in the future. I would further inform my view by checking insider buying and selling., among other things.

Don't Forget: The P/E Does Not Account For Debt or Bank Deposits

It's important to note that the P/E ratio considers the market capitalization, not the enterprise value. That means it doesn't take debt or cash into account. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.

Spending on growth might be good or bad a few years later, but the point is that the P/E ratio does not account for the option (or lack thereof).

Is Debt Impacting Geojit Financial Services's P/E?

Geojit Financial Services has net cash of ₹3.4b. This is fairly high at 47% of its market capitalization. That might mean balance sheet strength is important to the business, but should also help push the P/E a bit higher than it would otherwise be.

The Bottom Line On Geojit Financial Services's P/E Ratio

Geojit Financial Services's P/E is 27.7 which is above average (14.0) in its market. Falling earnings per share is probably keeping traditional value investors away, but the net cash position means the company has time to improve: and the high P/E suggests the market thinks it will. What we know for sure is that investors have become much more excited about Geojit Financial Services recently, since they have pushed its P/E ratio from 20.3 to 27.7 over the last month. For those who prefer to invest with the flow of momentum, that might mean it's time to put the stock on a watchlist, or research it. But the contrarian may see it as a missed opportunity.

When the market is wrong about a stock, it gives savvy investors an opportunity. As value investor Benjamin Graham famously said, 'In the short run, the market is a voting machine but in the long run, it is a weighing machine. Although we don't have analyst forecasts you might want to assess this data-rich visualization of earnings, revenue and cash flow.

You might be able to find a better buy than Geojit Financial Services. If you want a selection of possible winners, check out this free list of interesting companies that trade on a P/E below 20 (but have proven they can grow earnings).

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.