Ashapura Minechem Limited (NSE:ASHAPURMIN) Stock Rockets 27% But Many Are Still Ignoring The Company

The Ashapura Minechem Limited (NSE:ASHAPURMIN) share price has done very well over the last month, posting an excellent gain of 27%. Taking a wider view, although not as strong as the last month, the full year gain of 19% is also fairly reasonable.

Even after such a large jump in price, Ashapura Minechem may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 14.5x, since almost half of all companies in India have P/E ratios greater than 28x and even P/E's higher than 54x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Ashapura Minechem has been doing a decent job lately as it's been growing earnings at a reasonable pace. It might be that many expect the respectable earnings performance to degrade, 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 Ashapura Minechem

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Is There Any Growth For Ashapura Minechem?

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

Taking a look back first, we see that the company managed to grow earnings per share by a handy 5.7% last year. The latest three year period has also seen an excellent 138% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 23% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it odd that Ashapura Minechem is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Ashapura Minechem's P/E

The latest share price surge wasn't enough to lift Ashapura Minechem's P/E close to the market median. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Ashapura Minechem revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. 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.

Before you settle on your opinion, we've discovered 3 warning signs for Ashapura Minechem (2 are concerning!) that you should be aware of.

If these risks are making you reconsider your opinion on Ashapura Minechem, 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.