The Sandur Manganese & Iron Ores Limited (NSE:SANDUMA) Held Back By Insufficient Growth Even After Shares Climb 25%

The The Sandur Manganese & Iron Ores Limited (NSE:SANDUMA) share price has done very well over the last month, posting an excellent gain of 25%. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Although its price has surged higher, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 29x, you may still consider Sandur Manganese & Iron Ores as an attractive investment with its 17.9x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

For instance, Sandur Manganese & Iron Ores' receding earnings in recent times would have to be some food for thought. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. 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 Sandur Manganese & Iron Ores

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Is There Any Growth For Sandur Manganese & Iron Ores?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 54%. The last three years don't look nice either as the company has shrunk EPS by 27% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's an unpleasant look.

With this information, we are not surprised that Sandur Manganese & Iron Ores 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. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

Sandur Manganese & Iron Ores' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Sandur Manganese & Iron Ores revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. 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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Sandur Manganese & Iron Ores that you should be aware of.

Of course, you might also be able to find a better stock than Sandur Manganese & Iron Ores. 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.