Cyber Media (India) Limited (NSE:CYBERMEDIA) Surges 29% Yet Its Low P/E Is No Reason For Excitement

Despite an already strong run, Cyber Media (India) Limited (NSE:CYBERMEDIA) shares have been powering on, with a gain of 29% in the last thirty days. The annual gain comes to 117% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, Cyber Media (India)'s price-to-earnings (or "P/E") ratio of 14.9x might still make it look like a strong buy right now compared to the market in India, where around half of the companies have P/E ratios above 32x and even P/E's above 59x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for Cyber Media (India) as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

Check out our latest analysis for Cyber Media (India)

Although there are no analyst estimates available for Cyber Media (India), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For Cyber Media (India)?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Cyber Media (India)'s to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 168% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Cyber Media (India) 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.

What We Can Learn From Cyber Media (India)'s P/E?

Shares in Cyber Media (India) are going to need a lot more upward momentum to get the company's P/E out of its slump. 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.

We've established that Cyber Media (India) maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Cyber Media (India) (of which 2 are a bit concerning!) you should know about.

You might be able to find a better investment than Cyber Media (India). 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.