Shree Rama Multi-Tech Limited's (NSE:SHREERAMA) Price Is Right But Growth Is Lacking After Shares Rocket 27%

Shree Rama Multi-Tech Limited (NSE:SHREERAMA) 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. Looking back a bit further, it's encouraging to see the stock is up 92% in the last year.

In spite of the firm bounce in price, Shree Rama Multi-Tech may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 8.4x, since almost half of all companies in India have P/E ratios greater than 19x and even P/E's higher than 41x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

As an illustration, earnings have deteriorated at Shree Rama Multi-Tech over the last year, which is not ideal at all. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

View our latest analysis for Shree Rama Multi-Tech

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 Shree Rama Multi-Tech's earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The Low P/E?

Shree Rama Multi-Tech's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than 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 56%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 24% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Shree Rama Multi-Tech is trading at a P/E lower than the market. 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 Shree Rama Multi-Tech's P/E

Shree Rama Multi-Tech's recent share price jump still sees its P/E sitting firmly flat on the ground. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Shree Rama Multi-Tech revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. 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.

Plus, you should also learn about these 4 warning signs we've spotted with Shree Rama Multi-Tech (including 2 which shouldn't be ignored).

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 P/E below 20x.

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