The Sandur Manganese & Iron Ores Limited (NSE:SANDUMA) Shares Fly 27% But Investors Aren't Buying For Growth

The Sandur Manganese & Iron Ores Limited (NSE:SANDUMA) shareholders have had their patience rewarded with a 27% share price jump in the last month. Notwithstanding the latest gain, the annual share price return of 3.2% isn't as impressive.

In spite of the firm bounce in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 26x, you may still consider Sandur Manganese & Iron Ores as an attractive investment with its 17.1x 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.

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With earnings growth that's exceedingly strong of late, Sandur Manganese & Iron Ores has been doing very well. 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.

View our latest analysis for Sandur Manganese & Iron Ores

Although there are no analyst estimates available for Sandur Manganese & Iron Ores, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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, we see that the company grew earnings per share by an impressive 97% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 69% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 24% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

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. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Key Takeaway

Despite Sandur Manganese & Iron Ores' shares building up a head of steam, its P/E still lags most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Sandur Manganese & Iron Ores maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 1 warning sign for Sandur Manganese & Iron Ores that we have uncovered.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.