Slammed 26% DC Infotech and Communication Limited (NSE:DCI) Screens Well Here But There Might Be A Catch

DC Infotech and Communication Limited (NSE:DCI) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 121% in the last twelve months.

In spite of the heavy fall in price, it's still not a stretch to say that DC Infotech and Communication's price-to-earnings (or "P/E") ratio of 33.3x right now seems quite "middle-of-the-road" compared to the market in India, where the median P/E ratio is around 34x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With earnings growth that's exceedingly strong of late, DC Infotech and Communication has been doing very well. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. 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

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

Is There Some Growth For DC Infotech and Communication?

The only time you'd be comfortable seeing a P/E like DC Infotech and Communication's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 54% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 298% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 25% 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 curious that DC Infotech and Communication's P/E sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

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

Following DC Infotech and Communication's share price tumble, its P/E is now hanging on to the median market P/E. 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 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. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 4 warning signs for DC Infotech and Communication (of which 1 is a bit concerning!) you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.