Mangalam Worldwide Limited (NSE:MWL) Stock Rockets 26% But Many Are Still Ignoring The Company

Mangalam Worldwide Limited (NSE:MWL) shareholders have had their patience rewarded with a 26% share price jump in the last month. Notwithstanding the latest gain, the annual share price return of 8.4% isn't as impressive.

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 31x, you may still consider Mangalam Worldwide as an attractive investment with its 17.8x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Mangalam Worldwide has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. 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.

See our latest analysis for Mangalam Worldwide

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Is There Any Growth For Mangalam Worldwide?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 24% last year. Pleasingly, EPS has also lifted 238% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 24% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Mangalam Worldwide is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Mangalam Worldwide's P/E

The latest share price surge wasn't enough to lift Mangalam Worldwide's P/E close to the market median. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Mangalam Worldwide currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. 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.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Mangalam Worldwide (1 shouldn't be ignored!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Mangalam Worldwide, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.