Manaksia Steels Limited's (NSE:MANAKSTEEL) Share Price Boosted 31% But Its Business Prospects Need A Lift Too

The Manaksia Steels Limited (NSE:MANAKSTEEL) share price has done very well over the last month, posting an excellent gain of 31%. Looking back a bit further, it's encouraging to see the stock is up 43% in the last year.

In spite of the firm bounce in price, Manaksia Steels' price-to-earnings (or "P/E") ratio of 22.7x might still make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 35x and even P/E's above 66x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

As an illustration, earnings have deteriorated at Manaksia Steels over the last year, which is not ideal at all. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for Manaksia Steels

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

How Is Manaksia Steels' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Manaksia Steels' is when the company's growth is on track to lag the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 8.4%. As a result, earnings from three years ago have also fallen 45% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 26% shows it's an unpleasant look.

With this information, we are not surprised that Manaksia Steels is trading at a P/E lower than the market. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Bottom Line On Manaksia Steels' P/E

Despite Manaksia Steels' shares building up a head of steam, its P/E still lags 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 Manaksia Steels maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with Manaksia Steels.

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.