PTC India Financial Services Limited (NSE:PFS) Stock Catapults 25% Though Its Price And Business Still Lag The Market

Despite an already strong run, PTC India Financial Services Limited (NSE:PFS) shares have been powering on, with a gain of 25% in the last thirty days. The annual gain comes to 140% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 31x, you may still consider PTC India Financial Services as an attractive investment with its 16.3x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Earnings have risen firmly for PTC India Financial Services recently, which is pleasing to see. 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.

Check out our latest analysis for PTC India Financial Services

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

Is There Any Growth For PTC India Financial Services?

PTC India Financial Services' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered an exceptional 25% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 56% in total over the last three years. So we can start by confirming that the company has 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 momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why PTC India Financial Services is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From PTC India Financial Services' P/E?

Despite PTC India Financial Services' shares building up a head of steam, its P/E still lags most other companies. 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.

As we suspected, our examination of PTC India Financial Services revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for PTC India Financial Services you should be aware of, and 1 of them doesn't sit too well with us.

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.