Wealth First Portfolio Managers Limited's (NSE:WEALTH) Shares Leap 31% Yet They're Still Not Telling The Full Story

Wealth First Portfolio Managers Limited (NSE:WEALTH) shares have continued their recent momentum with a 31% gain in the last month alone. The annual gain comes to 102% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, Wealth First Portfolio Managers may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 21.4x, since almost half of all companies in India have P/E ratios greater than 29x and even P/E's higher than 54x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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.

See 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?

There's an inherent assumption that a company should underperform the market for P/E ratios like Wealth First Portfolio Managers' to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 74% last year. The strong recent performance means it was also able to grow EPS by 85% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is predicted to deliver 24% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised earnings results.

With this information, we find it odd that Wealth First Portfolio Managers is trading at a P/E lower than the market. It may be that most investors are not convinced the company can maintain recent growth rates.

The Final Word

The latest share price surge wasn't enough to lift Wealth First Portfolio Managers' P/E close to the market median. 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.

Our examination of Wealth First Portfolio Managers 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.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Wealth First Portfolio Managers that you need to be mindful of.

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.