Investors Still Aren't Entirely Convinced By Keynote Financial Services Limited's (NSE:KEYFINSERV) Earnings Despite 28% Price Jump

Keynote Financial Services Limited (NSE:KEYFINSERV) shares have continued their recent momentum with a 28% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 84% in the last year.

Although its price has surged higher, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 32x, you may still consider Keynote Financial Services as a highly attractive investment with its 5.5x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Keynote 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 Keynote Financial Services

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

Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered an exceptional 489% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 297% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

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.

In light of this, it's peculiar that Keynote Financial Services' P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Keynote Financial Services' P/E

Keynote Financial Services' recent share price jump still sees its P/E sitting firmly flat on the ground. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Keynote Financial Services 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. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Having said that, be aware Keynote Financial Services is showing 4 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.