Optimistic Investors Push Dolphin Offshore Enterprises (India) Limited (NSE:DOLPHIN) Shares Up 26% But Growth Is Lacking

Those holding Dolphin Offshore Enterprises (India) Limited (NSE:DOLPHIN) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 15% over that time.

Following the firm bounce in price, given around half the companies in India have price-to-earnings ratios (or "P/E's") below 25x, you may consider Dolphin Offshore Enterprises (India) as a stock to potentially avoid with its 29x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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For instance, Dolphin Offshore Enterprises (India)'s receding earnings in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Dolphin Offshore Enterprises (India)

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 Dolphin Offshore Enterprises (India)'s earnings, revenue and cash flow.

How Is Dolphin Offshore Enterprises (India)'s Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Dolphin Offshore Enterprises (India)'s is when the company's growth is on track to outshine the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 19%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

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.

In light of this, it's alarming that Dolphin Offshore Enterprises (India)'s P/E sits above the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Final Word

The large bounce in Dolphin Offshore Enterprises (India)'s shares has lifted the company's P/E to a fairly high level. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Dolphin Offshore Enterprises (India) currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 1 warning sign for Dolphin Offshore Enterprises (India) you should be aware of.

You might be able to find a better investment than Dolphin Offshore Enterprises (India). If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.