Sarda Energy & Minerals Limited (NSE:SARDAEN) Surges 27% Yet Its Low P/E Is No Reason For Excitement

Explore Sarda Energy & Minerals's Fair Values from the Community and select yours

Sarda Energy & Minerals Limited (NSE:SARDAEN) shareholders have had their patience rewarded with a 27% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 71%.

Although its price has surged higher, Sarda Energy & Minerals' price-to-earnings (or "P/E") ratio of 21x 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 28x and even P/E's above 55x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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Recent times have been quite advantageous for Sarda Energy & Minerals as its earnings have been rising very briskly. 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 Sarda Energy & Minerals

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Sarda Energy & Minerals' earnings, revenue and cash flow.

How Is Sarda Energy & Minerals' Growth Trending?

In order to justify its P/E ratio, Sarda Energy & Minerals would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 70% gain to the company's bottom line. EPS has also lifted 18% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 25% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Sarda Energy & Minerals' P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Sarda Energy & Minerals' P/E

The latest share price surge wasn't enough to lift Sarda Energy & Minerals' P/E close to the market median. 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.

As we suspected, our examination of Sarda Energy & Minerals revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Sarda Energy & Minerals, and understanding should be part of your investment process.

Of course, you might also be able to find a better stock than Sarda Energy & Minerals. 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.