Wealth First Portfolio Managers Limited (NSE:WEALTH) Might Not Be As Mispriced As It Looks After Plunging 30%

Wealth First Portfolio Managers Limited (NSE:WEALTH) shareholders that were waiting for something to happen have been dealt a blow with a 30% share price drop in the last month. The good news is that in the last year, the stock has shone bright like a diamond, gaining 130%.

Although its price has dipped substantially, Wealth First Portfolio Managers' price-to-earnings (or "P/E") ratio of 22.2x might still make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 30x and even P/E's above 56x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's exceedingly strong of late, Wealth First Portfolio Managers has been doing very well. 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.

View our latest analysis for Wealth First Portfolio Managers

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Wealth First Portfolio Managers' earnings, revenue and cash flow.

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

Wealth First Portfolio Managers' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 74%. The latest three year period has also seen an excellent 444% overall rise in EPS, aided by its short-term performance. 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 peculiar that Wealth First Portfolio Managers' P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Wealth First Portfolio Managers' P/E

Wealth First Portfolio Managers' recently weak share price has pulled its P/E below most other companies. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Wealth First Portfolio Managers 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 Wealth First Portfolio Managers is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Wealth First Portfolio Managers' 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.