G N A Axles Limited (NSE:GNA) Shares Fly 28% But Investors Aren't Buying For Growth

The G N A Axles Limited (NSE:GNA) share price has done very well over the last month, posting an excellent gain of 28%. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 6.1% in the last twelve months.

In spite of the firm bounce in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 26x, you may still consider G N A Axles as an attractive investment with its 15.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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Recent times haven't been advantageous for G N A Axles as its earnings have been rising slower than most other companies. The P/E is probably low because investors think this lacklustre earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for G N A Axles

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How Is G N A Axles' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as G N A Axles' is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a worthy increase of 9.9%. The latest three year period has also seen a 10% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 11% during the coming year according to the one analyst following the company. With the market predicted to deliver 25% growth , the company is positioned for a weaker earnings result.

In light of this, it's understandable that G N A Axles' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

The latest share price surge wasn't enough to lift G N A Axles' P/E close to the market median. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of G N A Axles' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for G N A Axles that you should be aware of.

If you're unsure about the strength of G N A Axles' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.