What Maan Aluminium Limited's (NSE:MAANALU) 25% Share Price Gain Is Not Telling You

The Maan Aluminium Limited (NSE:MAANALU) share price has done very well over the last month, posting an excellent gain of 25%. The last month tops off a massive increase of 100% in the last year.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Maan Aluminium's P/E ratio of 35.7x, since the median price-to-earnings (or "P/E") ratio in India is also close to 34x. 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.

For example, consider that Maan Aluminium's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Maan Aluminium

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 Maan Aluminium's earnings, revenue and cash flow.

Is There Some Growth For Maan Aluminium?

There's an inherent assumption that a company should be matching the market for P/E ratios like Maan Aluminium's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 50% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 41% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the market, which is expected to grow by 26% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Maan Aluminium's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

What We Can Learn From Maan Aluminium's P/E?

Maan Aluminium appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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.

We've established that Maan Aluminium currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are uncomfortable with the P/E as this earnings performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 1 warning sign for Maan Aluminium you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.