Some OnMobile Global Limited (NSE:ONMOBILE) Shareholders Look For Exit As Shares Take 33% Pounding

OnMobile Global Limited (NSE:ONMOBILE) shareholders that were waiting for something to happen have been dealt a blow with a 33% share price drop in the last month. Indeed, the recent drop has reduced its annual gain to a relatively sedate 3.5% over the last twelve months.

Even after such a large drop in price, OnMobile Global's price-to-earnings (or "P/E") ratio of 56.4x might still make it look like a strong sell right now compared to the market in India, where around half of the companies have P/E ratios below 30x and even P/E's below 17x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

OnMobile Global has been doing a decent job lately as it's been growing earnings at a reasonable pace. It might be that many expect the reasonable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for OnMobile Global

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 OnMobile Global's earnings, revenue and cash flow.

Does Growth Match The High P/E?

In order to justify its P/E ratio, OnMobile Global would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a decent 3.7% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen an unpleasant 72% overall drop in EPS. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Comparing that to the market, which is predicted to deliver 24% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we find it concerning that OnMobile Global is trading at a P/E higher than the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Bottom Line On OnMobile Global's P/E

Even after such a strong price drop, OnMobile Global's P/E still exceeds the rest of the market significantly. 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.

Our examination of OnMobile Global revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 2 warning signs for OnMobile Global (of which 1 shouldn't be ignored!) you should know about.

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

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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.