Investors Holding Back On Geekay Wires Limited (NSE:GEEKAYWIRE)

Geekay Wires Limited's (NSE:GEEKAYWIRE) price-to-earnings (or "P/E") ratio of 13.5x might make it look like a strong buy right now compared to the market in India, where around half of the companies have P/E ratios above 32x and even P/E's above 61x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

The recent earnings growth at Geekay Wires would have to be considered satisfactory if not spectacular. One possibility is that the P/E is low because investors think this good earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

View our latest analysis for Geekay Wires

Although there are no analyst estimates available for Geekay Wires, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Geekay Wires' Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Geekay Wires' to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 7.4% last year. Pleasingly, EPS has also lifted 555% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 26% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that Geekay Wires' P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

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 Geekay Wires 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. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. 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.

We don't want to rain on the parade too much, but we did also find 5 warning signs for Geekay Wires (1 is a bit concerning!) that you need to be mindful of.

If you're unsure about the strength of Geekay Wires' 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.