Envirotech Systems Limited (NSE:ENVIRO) Shares Fly 27% But Investors Aren't Buying For Growth

Simply Wall St · 07/02 00:06

Envirotech Systems Limited (NSE:ENVIRO) shareholders have had their patience rewarded with a 27% share price jump in the last month. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Although its price has surged higher, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 30x, you may still consider Envirotech Systems as an attractive investment with its 17.4x 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 limited.

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As an illustration, earnings have deteriorated at Envirotech Systems over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, 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 Envirotech Systems

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NSEI:ENVIRO Price to Earnings Ratio vs Industry July 2nd 2025
Although there are no analyst estimates available for Envirotech Systems, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Envirotech Systems' Growth Trending?

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

Retrospectively, the last year delivered a frustrating 12% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 65% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 23% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's understandable that Envirotech Systems' P/E would sit below the majority of other companies. 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 Envirotech Systems' P/E?

Despite Envirotech Systems' shares building up a head of steam, its P/E still lags most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Envirotech Systems maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Envirotech Systems that you should be aware of.

If these risks are making you reconsider your opinion on Envirotech Systems, explore our interactive list of high quality stocks to get an idea of what else is out there.