The Sandur Manganese & Iron Ores Limited's (NSE:SANDUMA) Shares Bounce 28% But Its Business Still Trails The Market
The Sandur Manganese & Iron Ores Limited (NSE:SANDUMA) shares have continued their recent momentum with a 28% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 83% in the last year.
Even after such a large jump in price, Sandur Manganese & Iron Ores' price-to-earnings (or "P/E") ratio of 21.5x might still make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 26x and even P/E's above 50x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
Sandur Manganese & Iron Ores certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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 Sandur Manganese & Iron Ores
What Are Growth Metrics Telling Us About The Low P/E?
In order to justify its P/E ratio, Sandur Manganese & Iron Ores would need to produce sluggish growth that's trailing the market.
If we review the last year of earnings growth, the company posted a terrific increase of 72%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 1.5% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's an unpleasant look.
With this information, we are not surprised that Sandur Manganese & Iron Ores is trading at a P/E lower than the market. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.
What We Can Learn From Sandur Manganese & Iron Ores' P/E?
Despite Sandur Manganese & Iron Ores' shares building up a head of steam, its P/E still lags most other companies. 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.
As we suspected, our examination of Sandur Manganese & Iron Ores revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.
Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Sandur Manganese & Iron Ores (1 is significant) you should be aware of.
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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