Improved Earnings Required Before Umiya Buildcon Limited (NSE:UMIYA-MRO) Stock's 27% Jump Looks Justified
The Umiya Buildcon Limited (NSE:UMIYA-MRO) share price has done very well over the last month, posting an excellent gain of 27%. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 5.3% in the last twelve months.
In spite of the firm bounce in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 28x, you may still consider Umiya Buildcon as a highly attractive investment with its 5.3x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.
Recent times have been quite advantageous for Umiya Buildcon as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
View our latest analysis for Umiya Buildcon
How Is Umiya Buildcon's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as depressed as Umiya Buildcon's is when the company's growth is on track to lag the market decidedly.
If we review the last year of earnings growth, the company posted a terrific increase of 480%. 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.
Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's noticeably less attractive on an annualised basis.
With this information, we can see why Umiya Buildcon is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.
The Key Takeaway
Umiya Buildcon's recent share price jump still sees its P/E sitting firmly flat on the ground. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.
We've established that Umiya Buildcon maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.
There are also other vital risk factors to consider and we've discovered 2 warning signs for Umiya Buildcon (1 can't be ignored!) that you should be aware of before investing here.
If you're unsure about the strength of Umiya Buildcon'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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