Investors Give Spacenet Enterprises India Limited (NSE:SPCENET) Shares A 28% Hiding

Explore Spacenet Enterprises India's Fair Values from the Community and select yours

Spacenet Enterprises India Limited (NSE:SPCENET) shareholders won't be pleased to see that the share price has had a very rough month, dropping 28% and undoing the prior period's positive performance. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 77% loss during that time.

Even after such a large drop in price, it's still not a stretch to say that Spacenet Enterprises India's price-to-earnings (or "P/E") ratio of 28.3x right now seems quite "middle-of-the-road" compared to the market in India, where the median P/E ratio is around 28x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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Earnings have risen firmly for Spacenet Enterprises India recently, which is pleasing to see. One possibility is that the P/E is moderate because investors think this respectable earnings growth might not be enough to outperform the broader market in the near future. 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 not quite in favour.

Check out our latest analysis for Spacenet Enterprises India

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

How Is Spacenet Enterprises India's Growth Trending?

In order to justify its P/E ratio, Spacenet Enterprises India would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a worthy increase of 14%. Pleasingly, EPS has also lifted 574% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Spacenet Enterprises India is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What We Can Learn From Spacenet Enterprises India's P/E?

Following Spacenet Enterprises India's share price tumble, its P/E is now hanging on to the median market P/E. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Spacenet Enterprises India revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Having said that, be aware Spacenet Enterprises India is showing 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable.

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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.