IZMO Limited (NSE:IZMO) Stock Catapults 35% Though Its Price And Business Still Lag The Market

IZMO Limited (NSE:IZMO) shareholders have had their patience rewarded with a 35% share price jump in the last month. The annual gain comes to 176% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, IZMO's price-to-earnings (or "P/E") ratio of 19.2x 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 31x and even P/E's above 57x 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.

IZMO certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong 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 IZMO

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

How Is IZMO's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 42% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 6.6% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 24% shows it's an unpleasant look.

In light of this, it's understandable that IZMO's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Bottom Line On IZMO's P/E

IZMO's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of IZMO 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.

Plus, you should also learn about these 2 warning signs we've spotted with IZMO.

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.