Inventure Growth & Securities Limited's (NSE:INVENTURE) Shares Bounce 27% But Its Business Still Trails The Market

Inventure Growth & Securities Limited (NSE:INVENTURE) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 40%.

In spite of the firm bounce in price, Inventure Growth & Securities' price-to-earnings (or "P/E") ratio of 19.1x 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 31x and even P/E's above 61x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Inventure Growth & Securities 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 that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

View our latest analysis for Inventure Growth & Securities

Although there are no analyst estimates available for Inventure Growth & Securities, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Inventure Growth & Securities' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Inventure Growth & Securities' is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 27%. However, this wasn't enough as the latest three year period has seen a very unpleasant 3.5% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 25% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's understandable that Inventure Growth & Securities' P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

Despite Inventure Growth & Securities' shares building up a head of steam, its P/E still lags most other companies. 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 Inventure Growth & Securities maintains its low P/E on the weakness of its sliding earnings over the medium-term, 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 1 warning sign for Inventure Growth & Securities that you should be aware of.

If you're unsure about the strength of Inventure Growth & Securities' 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.