Improved Earnings Required Before Indo Amines Limited (NSE:INDOAMIN) Stock's 27% Jump Looks Justified

Indo Amines Limited (NSE:INDOAMIN) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 2.5% in the last twelve months.

Even after such a large jump in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 27x, you may still consider Indo Amines as an attractive investment with its 18.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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The recent earnings growth at Indo Amines would have to be considered satisfactory if not spectacular. 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 Indo Amines

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

Is There Any Growth For Indo Amines?

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

Retrospectively, the last year delivered a decent 5.2% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 38% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

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.

With this information, we can see why Indo Amines 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 Key Takeaway

Despite Indo Amines' shares building up a head of steam, its P/E still lags most other companies. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Indo Amines 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.

Before you settle on your opinion, we've discovered 1 warning sign for Indo Amines that you should be aware of.

Of course, you might also be able to find a better stock than Indo Amines. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.