Investors Still Aren't Entirely Convinced By Cubex Tubings Limited's (NSE:CUBEXTUB) Earnings Despite 29% Price Jump

Cubex Tubings Limited (NSE:CUBEXTUB) shareholders have had their patience rewarded with a 29% share price jump in the last month. The annual gain comes to 170% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, it's still not a stretch to say that Cubex Tubings' price-to-earnings (or "P/E") ratio of 29.4x right now seems quite "middle-of-the-road" compared to the market in India, where the median P/E ratio is around 31x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With earnings growth that's exceedingly strong of late, Cubex Tubings has been doing very well. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. 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 not quite in favour.

See our latest analysis for Cubex Tubings

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 Cubex Tubings' earnings, revenue and cash flow.

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

Cubex Tubings' P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a terrific increase of 69%. Pleasingly, EPS has also lifted 482% in aggregate from three years ago, thanks to the last 12 months of growth. 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.

With this information, we find it interesting that Cubex Tubings is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

Its shares have lifted substantially and now Cubex Tubings' P/E is also back up to the market median. 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.

We've established that Cubex Tubings currently trades on a 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 pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Cubex Tubings, and understanding should be part of your investment process.

You might be able to find a better investment than Cubex Tubings. 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.