Manaksia Coated Metals & Industries Limited (NSE:MANAKCOAT) Might Not Be As Mispriced As It Looks After Plunging 34%

Manaksia Coated Metals & Industries Limited (NSE:MANAKCOAT) shareholders won't be pleased to see that the share price has had a very rough month, dropping 34% and undoing the prior period's positive performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 96%, which is great even in a bull market.

Following the heavy fall in price, Manaksia Coated Metals & Industries may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 15.5x, since almost half of all companies in India have P/E ratios greater than 29x 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.

Manaksia Coated Metals & Industries certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, 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 Manaksia Coated Metals & Industries

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 Manaksia Coated Metals & Industries' earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Manaksia Coated Metals & Industries would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 163% last year. Pleasingly, EPS has also lifted 109% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 24% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that Manaksia Coated Metals & Industries is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

The softening of Manaksia Coated Metals & Industries' shares means its P/E is now sitting at a pretty low level. 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.

Our examination of Manaksia Coated Metals & Industries 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. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 5 warning signs for Manaksia Coated Metals & Industries (2 are potentially serious!) that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.