DC Infotech and Communication Limited's (NSE:DCI) Shares Leap 27% Yet They're Still Not Telling The Full Story

Despite an already strong run, DC Infotech and Communication Limited (NSE:DCI) shares have been powering on, with a gain of 27% in the last thirty days. The last 30 days bring the annual gain to a very sharp 75%.

In spite of the firm bounce in price, there still wouldn't be many who think DC Infotech and Communication's price-to-earnings (or "P/E") ratio of 33.3x is worth a mention when the median P/E in India is similar at about 31x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

DC Infotech and Communication 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 wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for DC Infotech and Communication

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

Is There Some Growth For DC Infotech and Communication?

In order to justify its P/E ratio, DC Infotech and Communication would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a terrific increase of 90%. Pleasingly, EPS has also lifted 364% 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.

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 curious that DC Infotech and Communication's P/E sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From DC Infotech and Communication's P/E?

DC Infotech and Communication's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 DC Infotech and Communication revealed its three-year earnings trends aren't contributing to its P/E 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 pressure on the P/E ratio. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for DC Infotech and Communication (2 can't be ignored) you should be aware of.

You might be able to find a better investment than DC Infotech and Communication. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.