Indraprastha Medical Corporation Limited (NSE:INDRAMEDCO) Shares Fly 42% But Investors Aren't Buying For Growth

Indraprastha Medical Corporation Limited (NSE:INDRAMEDCO) shares have had a really impressive month, gaining 42% after a shaky period beforehand. The last month tops off a massive increase of 203% in the last year.

Although its price has surged higher, Indraprastha Medical's price-to-earnings (or "P/E") ratio of 19.8x 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 31x and even P/E's above 57x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been quite advantageous for Indraprastha Medical as its earnings have been rising very briskly. 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.

Check out our latest analysis for Indraprastha Medical

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

Is There Any Growth For Indraprastha Medical?

In order to justify its P/E ratio, Indraprastha Medical would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 38% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 24% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Indraprastha Medical is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On Indraprastha Medical's P/E

Indraprastha Medical's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Indraprastha Medical revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Indraprastha Medical is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Indraprastha Medical, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.