NLC India Limited (NSE:NLCINDIA) Shares Fly 28% But Investors Aren't Buying For Growth

The NLC India Limited (NSE:NLCINDIA) share price has done very well over the last month, posting an excellent gain of 28%. The annual gain comes to 151% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 34x, you may still consider NLC India as an attractive investment with its 22.3x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

NLC India certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for NLC India

If you'd like to see what analysts are forecasting going forward, you should check out our free report on NLC India.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, NLC India would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 34% last year. Pleasingly, EPS has also lifted 45% 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.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 22% over the next year. Meanwhile, the rest of the market is forecast to expand by 25%, which is noticeably more attractive.

In light of this, it's understandable that NLC India's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On NLC India's P/E

NLC India's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

We've established that NLC India maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for NLC India that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com