Investors Give Mindteck (India) Limited (NSE:MINDTECK) Shares A 26% Hiding

Mindteck (India) Limited (NSE:MINDTECK) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. Looking at the bigger picture, even after this poor month the stock is up 60% in the last year.

After such a large drop in price, Mindteck (India) may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 8.2x, since almost half of all companies in India have P/E ratios greater than 21x and even P/E's higher than 45x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Mindteck (India) 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 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)

Although there are no analyst estimates available for Mindteck (India), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Mindteck (India)'s Growth Trending?

In order to justify its P/E ratio, Mindteck (India) would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 206% gain to the company's bottom line. Pleasingly, EPS has also lifted 1,111% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 22% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

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 Bottom Line On Mindteck (India)'s P/E

Shares in Mindteck (India) have plummeted and its P/E is now low enough to touch the ground. 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.

Our examination of Mindteck (India) revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Having said that, be aware Mindteck (India) is showing 4 warning signs in our investment analysis, you should know about.

If you're unsure about the strength of Mindteck (India)'s business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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

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.