D.K. Enterprises Global Limited (NSE:DKEGL) Surges 28% Yet Its Low P/E Is No Reason For Excitement

Simply Wall St · 10/15 00:01

The D.K. Enterprises Global Limited (NSE:DKEGL) share price has done very well over the last month, posting an excellent gain of 28%. Looking further back, the 18% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, D.K. Enterprises Global's price-to-earnings (or "P/E") ratio of 16x might still make it look like a strong buy right now compared to the market in India, where around half of the companies have P/E ratios above 34x and even P/E's above 65x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

D.K. Enterprises Global has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable 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.

Check out our latest analysis for D.K. Enterprises Global

pe-multiple-vs-industry
NSEI:DKEGL Price to Earnings Ratio vs Industry October 15th 2024
Although there are no analyst estimates available for D.K. Enterprises Global, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is D.K. Enterprises Global's Growth Trending?

In order to justify its P/E ratio, D.K. Enterprises Global would need to produce anemic growth that's substantially trailing the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 7.9% last year. Still, EPS has barely risen at all in aggregate from three years ago, 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 26% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why D.K. Enterprises Global is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From D.K. Enterprises Global's P/E?

Shares in D.K. Enterprises Global are going to need a lot more upward momentum to get the company's P/E out of its slump. 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 D.K. Enterprises Global revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. 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.

We don't want to rain on the parade too much, but we did also find 3 warning signs for D.K. Enterprises Global (2 are concerning!) that you need to be mindful of.

Of course, you might also be able to find a better stock than D.K. Enterprises Global. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.