Investors Still Aren't Entirely Convinced By Summit Securities Limited's (NSE:SUMMITSEC) Earnings Despite 30% Price Jump

Summit Securities Limited (NSE:SUMMITSEC) shares have continued their recent momentum with a 30% gain in the last month alone. The annual gain comes to 160% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Summit Securities' P/E ratio of 37.3x, since the median price-to-earnings (or "P/E") ratio in India is also close to 34x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Recent times have been quite advantageous for Summit Securities as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 Summit Securities

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

What Are Growth Metrics Telling Us About The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like Summit Securities' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 110%. Pleasingly, EPS has also lifted 296% 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.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's noticeably more attractive on an annualised basis.

In light of this, it's curious that Summit Securities' P/E sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Summit Securities' P/E?

Its shares have lifted substantially and now Summit Securities' P/E is also back up to the market median. 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 Summit Securities 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. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. 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 Summit Securities (1 is a bit unpleasant!) that you need to take into consideration.

If you're unsure about the strength of Summit 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.