Improved Earnings Required Before CyberTech Systems and Software Limited (NSE:CYBERTECH) Stock's 25% Jump Looks Justified

CyberTech Systems and Software Limited (NSE:CYBERTECH) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 34% in the last year.

Even after such a large jump in price, CyberTech Systems and Software's price-to-earnings (or "P/E") ratio of 25x might still make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 33x and even P/E's above 65x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

For example, consider that CyberTech Systems and Software's financial performance has been pretty ordinary lately as earnings growth is non-existent. It might be that many expect the uninspiring earnings performance to worsen, 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 CyberTech Systems and Software

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 CyberTech Systems and Software's earnings, revenue and cash flow.

Is There Any Growth For CyberTech Systems and Software?

The only time you'd be truly comfortable seeing a P/E as low as CyberTech Systems and Software's is when the company's growth is on track to lag the market.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 16% drop in EPS. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 25% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we are not surprised that CyberTech Systems and Software is trading at a P/E lower than the market. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Bottom Line On CyberTech Systems and Software's P/E

CyberTech Systems and Software's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

As we suspected, our examination of CyberTech Systems and Software revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for CyberTech Systems and Software you should know about.

If these risks are making you reconsider your opinion on CyberTech Systems and Software, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com