Nucleus Software Exports Limited (NSE:NUCLEUS) Stock Rockets 35% But Many Are Still Ignoring The Company

Nucleus Software Exports Limited (NSE:NUCLEUS) shares have continued their recent momentum with a 35% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 12% over that time.

In spite of the firm bounce in price, Nucleus Software Exports' price-to-earnings (or "P/E") ratio of 20.7x 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 28x and even P/E's above 52x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Nucleus Software Exports hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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How Is Nucleus Software Exports' Growth Trending?

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

Retrospectively, the last year delivered a frustrating 27% decrease to the company's bottom line. Even so, admirably EPS has lifted 232% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 27% during the coming year according to the one analyst following the company. That's shaping up to be materially higher than the 24% growth forecast for the broader market.

In light of this, it's peculiar that Nucleus Software Exports' P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

Nucleus Software Exports' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Nucleus Software Exports' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Before you take the next step, you should know about the 1 warning sign for Nucleus Software Exports that we have uncovered.

If these risks are making you reconsider your opinion on Nucleus Software Exports, 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.