The Sandur Manganese & Iron Ores Limited's (NSE:SANDUMA) Share Price Boosted 27% But Its Business Prospects Need A Lift Too

The Sandur Manganese & Iron Ores Limited (NSE:SANDUMA) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. Taking a wider view, although not as strong as the last month, the full year gain of 21% is also fairly reasonable.

Although its price has surged higher, Sandur Manganese & Iron Ores may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 16.3x, since almost half of all companies in India have P/E ratios greater than 26x and even P/E's higher than 49x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Sandur Manganese & Iron Ores certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong 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 Sandur Manganese & Iron Ores

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

Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Sandur Manganese & Iron Ores' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 97% gain to the company's bottom line. Still, incredibly EPS has fallen 69% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

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. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. 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. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Sandur Manganese & Iron Ores that you need to be mindful 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.