Shyam Metalics and Energy Limited's (NSE:SHYAMMETL) Shares Leap 25% Yet They're Still Not Telling The Full Story

Shyam Metalics and Energy Limited (NSE:SHYAMMETL) shares have had a really impressive month, gaining 25% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 45%.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Shyam Metalics and Energy's P/E ratio of 26.7x, since the median price-to-earnings (or "P/E") ratio in India is also close to 25x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

While the market has experienced earnings growth lately, Shyam Metalics and Energy's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

View our latest analysis for Shyam Metalics and Energy

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Does Growth Match The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like Shyam Metalics and Energy's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 22%. This means it has also seen a slide in earnings over the longer-term as EPS is down 52% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 58% as estimated by the six analysts watching the company. That's shaping up to be materially higher than the 25% growth forecast for the broader market.

In light of this, it's curious that Shyam Metalics and Energy's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

Shyam Metalics and Energy's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Shyam Metalics and Energy's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Having said that, be aware Shyam Metalics and Energy is showing 1 warning sign in our investment analysis, you should know about.

You might be able to find a better investment than Shyam Metalics and Energy. 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).

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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.