Investors Aren't Buying Manoj Vaibhav Gems 'N' Jewellers Limited's (NSE:MVGJL) Earnings

Manoj Vaibhav Gems 'N' Jewellers Limited's (NSE:MVGJL) price-to-earnings (or "P/E") ratio of 10.1x might 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 25x and even P/E's above 48x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Earnings have risen firmly for Manoj Vaibhav Gems 'N' Jewellers recently, which is pleasing to see. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. 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.

View our latest analysis for Manoj Vaibhav Gems 'N' Jewellers

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Manoj Vaibhav Gems 'N' Jewellers will help you shine a light on its historical performance.

Does Growth Match The Low P/E?

Manoj Vaibhav Gems 'N' Jewellers' P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 17% last year. The latest three year period has also seen an excellent 73% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

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.

In light of this, it's understandable that Manoj Vaibhav Gems 'N' Jewellers' P/E sits below the majority of other companies. 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

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.

We've established that Manoj Vaibhav Gems 'N' Jewellers 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.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Manoj Vaibhav Gems 'N' Jewellers that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.