Shree Rama Multi-Tech Limited's (NSE:SHREERAMA) Shares Bounce 25% But Its Business Still Trails The Market

Despite an already strong run, Shree Rama Multi-Tech Limited (NSE:SHREERAMA) shares have been powering on, with a gain of 25% in the last thirty days. The last 30 days bring the annual gain to a very sharp 76%.

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 12.8x, since almost half of all companies in India have P/E ratios greater than 28x and even P/E's higher than 54x 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.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

With earnings growth that's exceedingly strong of late, Shree Rama Multi-Tech has been doing very well. 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 that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Shree Rama Multi-Tech

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shree Rama Multi-Tech will help you shine a light on its historical performance.

Is There Any Growth For Shree Rama Multi-Tech?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Shree Rama Multi-Tech's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 359%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Shree Rama Multi-Tech's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Final Word

Even after such a strong price move, Shree Rama Multi-Tech's P/E still trails the rest of the market significantly. 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 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.

You always need to take note of risks, for example - Shree Rama Multi-Tech has 2 warning signs we think you should be aware of.

You might be able to find a better investment than Shree Rama Multi-Tech. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.