MIC Electronics Limited's (NSE:MICEL) Share Price Is Still Matching Investor Opinion Despite 25% Slump

MIC Electronics Limited (NSE:MICEL) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. Still, a bad month hasn't completely ruined the past year with the stock gaining 28%, which is great even in a bull market.

In spite of the heavy fall in price, it's still not a stretch to say that MIC Electronics' price-to-earnings (or "P/E") ratio of 25.7x right now seems quite "middle-of-the-road" compared to the market in India, where the median P/E ratio is around 26x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

MIC Electronics certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for MIC Electronics

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on MIC Electronics' earnings, revenue and cash flow.

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like MIC Electronics' is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 242%. Pleasingly, EPS has also lifted 103% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 25% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised earnings results.

With this information, we can see why MIC Electronics is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

The Bottom Line On MIC Electronics' P/E

MIC Electronics' plummeting stock price has brought its P/E right back to the rest of the market. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that MIC Electronics maintains its moderate P/E off the back of its recent three-year growth being in line with the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for MIC Electronics with six simple checks.

Of course, you might also be able to find a better stock than MIC Electronics. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.