There is a lot of optimism among investors ideaForge Technology Limited (NSE:IDEAFORGE) But growth is lacking

With a price-to-earnings ratio (or “P/E”) of 73.8x ideaForge Technology Limited (NSE:IDEAFORGE) could be sending very bearish signals at this point as almost half of all companies in India have price-to-earnings ratios below 31x and even price-to-earnings ratios below 18x are not uncommon. Nevertheless, we need to dig a little deeper to determine whether there is a rational basis for the very high price-to-earnings ratio.

The profit growth achieved at ideaForge Technology over the past year would be more than acceptable for most companies. It may be that many expect its respectable earnings performance to beat most other companies in the coming period, increasing investors’ willingness to pay for the stock. You’d really hope so, otherwise you’d be paying a pretty high price for no particular reason.

Check out our latest analysis for ideaForge Technology

NSEI:IDEAFORGE Price-to-Earnings Ratio vs. Industry June 15, 2024

While there are no analyst estimates available for ideaForge Technology, check this out free data-rich visualization to see how the company is doing in terms of revenue, revenue and cash flow.

Is there enough growth for ideaForge technology?

There is an inherent assumption that a company must perform much better than the market for price-to-earnings ratios like ideaForge Technology’s to be considered reasonable.

Looking at the past year of earnings growth, the company posted a whopping 28% increase. Yet earnings per share have barely increased in total compared to three years ago, which is not ideal. So it seems to us that the company has had a mixed performance in terms of growing profits over that period.

Weighing that recent medium-term earnings trajectory against the broader market’s one-year forecast for 25% growth shows it to be noticeably less attractive on an annual basis.

With this information, we find it concerning that ideaForge Technology is trading at a price-to-earnings ratio that is higher than the market. It seems most investors are ignoring the rather limited recent growth numbers and hoping for a turnaround in the company’s business prospects. Only the boldest would assume these prices are sustainable, as a continuation of recent earnings trends is likely to ultimately weigh heavily on the share price.

What can we learn from ideaForge Technology’s P/E?

It’s not wise to use the price-to-earnings ratio alone to determine whether you should sell your shares, but it can provide a practical guide to the company’s future prospects.

Our research from ideaForge Technology found that three-year earnings trends aren’t impacting the high price-to-earnings ratio nearly as much as we expected, as they look worse than current market expectations. When we see weak earnings with slower growth than the market, we suspect the stock price is at risk of falling, driving the high price/earnings lower. If recent medium-term earnings trends continue, shareholders’ investments will be significantly at risk and potential investors will be at risk of paying an excessive premium.

There can be many potential risks on a company’s balance sheet. Take a look at our free balance sheet analysis for ideaForge Technology with six simple checks on some of these key factors.

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

Valuation is complex, but we help make it simple.

Find out whether ideaForge technology may be over or undervalued by reviewing our comprehensive analysis, including: fair value estimates, risks and cautions, dividends, insider transactions and financial health.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.

Valuation is complex, but we help make it simple.

Find out whether ideaForge technology may be over or undervalued by reviewing our comprehensive analysis, including: fair value estimates, risks and cautions, dividends, insider transactions and financial health.

View the Free Analysis

Do you have feedback on this article? Worried about the content? Please contact us directly. You can also send an email to [email protected]