Further Upside For Mindteck (India) Limited (NSE:MINDTECK) Shares Could Introduce Price Risks After 28% Bounce

Despite an already strong run, Mindteck (India) Limited (NSE:MINDTECK) shares have been powering on, with a gain of 28% in the last thirty days. The annual gain comes to 138% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, Mindteck (India)'s price-to-earnings (or "P/E") ratio of 30x 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 34x and even P/E's above 66x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings growth that's exceedingly strong of late, Mindteck (India) has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, 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.

See our latest analysis for Mindteck (India)

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

How Is Mindteck (India)'s Growth Trending?

Mindteck (India)'s P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 33% last year. The strong recent performance means it was also able to grow EPS by 151% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Mindteck (India)'s P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Despite Mindteck (India)'s shares building up a head of steam, its P/E still lags most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Mindteck (India) currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Having said that, be aware Mindteck (India) is showing 3 warning signs in our investment analysis, and 1 of those can't be ignored.

If these risks are making you reconsider your opinion on Mindteck (India), 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