Mindteck (India) Limited (NSE:MINDTECK) Stock Rockets 78% As Investors Are Less Pessimistic Than Expected

Mindteck (India) Limited (NSE:MINDTECK) shares have had a really impressive month, gaining 78% after a shaky period beforehand. The annual gain comes to 154% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Mindteck (India)'s P/E ratio of 29.9x, since the median price-to-earnings (or "P/E") ratio in India is also close to 32x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the 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 wane, which has kept the P/E from rising. 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 not quite in favour.

View our latest analysis for Mindteck (India)

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 Mindteck (India)'s earnings, revenue and cash flow.

How Is Mindteck (India)'s Growth Trending?

The only time you'd be comfortable seeing a P/E like Mindteck (India)'s 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 45%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 24% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Mindteck (India)'s P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

The Final Word

Mindteck (India)'s stock has a lot of momentum behind it lately, which has brought its P/E level with the market. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Mindteck (India) revealed its three-year earnings trends aren't impacting its P/E as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Mindteck (India) (1 makes us a bit uncomfortable) you should be aware of.

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.

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.