Market Might Still Lack Some Conviction On Keynote Financial Services Limited (NSE:KEYFINSERV) Even After 43% Share Price Boost

Despite an already strong run, Keynote Financial Services Limited (NSE:KEYFINSERV) shares have been powering on, with a gain of 43% in the last thirty days. The last month tops off a massive increase of 226% in the last year.

Even after such a large jump in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 34x, you may still consider Keynote Financial Services as a highly attractive investment with its 7.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Keynote Financial Services certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Keynote Financial Services

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

How Is Keynote Financial Services' Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Keynote Financial Services' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 245%. Pleasingly, EPS has also lifted 102% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

It's interesting to note that the rest of the market is similarly expected to grow by 26% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we find it odd that Keynote Financial Services is trading at a P/E lower than the market. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

The Final Word

Shares in Keynote Financial Services are going to need a lot more upward momentum to get the company's P/E out of its slump. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Keynote Financial Services revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look similar to current market expectations. When we see average earnings with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

It is also worth noting that we have found 3 warning signs for Keynote Financial Services (1 makes us a bit uncomfortable!) that you need to take into consideration.

Of course, you might also be able to find a better stock than Keynote 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.