Madhya Pradesh Today Media Limited's (NSE:MPTODAY) Share Price Boosted 53% But Its Business Prospects Need A Lift Too

Despite an already strong run, Madhya Pradesh Today Media Limited (NSE:MPTODAY) shares have been powering on, with a gain of 53% in the last thirty days. The last 30 days bring the annual gain to a very sharp 41%.

In spite of the firm bounce in price, Madhya Pradesh Today Media's price-to-earnings (or "P/E") ratio of 7.1x 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 30x and even P/E's above 57x 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.

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Earnings have risen firmly for Madhya Pradesh Today Media recently, which is pleasing to see. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

See our latest analysis for Madhya Pradesh Today Media

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Madhya Pradesh Today Media will help you shine a light on its historical performance.

How Is Madhya Pradesh Today Media's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Madhya Pradesh Today Media's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 26% last year. As a result, it also grew EPS by 6.0% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Comparing that to the market, which is predicted to deliver 23% 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 Madhya Pradesh Today Media 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 Final Word

Madhya Pradesh Today Media's recent share price jump still sees its P/E sitting firmly flat on the ground. 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 Madhya Pradesh Today Media revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 4 warning signs for Madhya Pradesh Today Media (2 make us uncomfortable!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Madhya Pradesh Today Media, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.