D. B. Corp Limited (NSE:DBCORP) Shares Fly 26% But Investors Aren't Buying For Growth

Despite an already strong run, D. B. Corp Limited (NSE:DBCORP) shares have been powering on, with a gain of 26% in the last thirty days. The annual gain comes to 109% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, D. B may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 16.1x, since almost half of all companies in India have P/E ratios greater than 35x and even P/E's higher than 67x 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.

With earnings growth that's superior to most other companies of late, D. B has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for D. B

Want the full picture on analyst estimates for the company? Then our free report on D. B will help you uncover what's on the horizon.

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

In order to justify its P/E ratio, D. B would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 151% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 195% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 12% per year as estimated by the dual analysts watching the company. With the market predicted to deliver 22% growth per year, the company is positioned for a weaker earnings result.

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

What We Can Learn From D. B's P/E?

Even after such a strong price move, D. B's P/E still trails the rest of the market significantly. 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.

We've established that D. B maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 1 warning sign for D. B that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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