Some Confidence Is Lacking In Remsons Industries Limited (NSE:REMSONSIND) As Shares Slide 32%

The Remsons Industries Limited (NSE:REMSONSIND) share price has softened a substantial 32% over the previous 30 days, handing back much of the gains the stock has made lately. Longer-term shareholders would now have taken a real hit with the stock declining 9.5% in the last year.

Although its price has dipped substantially, Remsons Industries may still be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 19.8x, since almost half of all companies in India have P/E ratios under 15x and even P/E's lower than 7x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

For instance, Remsons Industries' receding earnings in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

View our latest analysis for Remsons Industries

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Remsons Industries will help you shine a light on its historical performance.

How Is Remsons Industries' Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Remsons Industries' to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 36%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 12% shows it's noticeably less attractive on an annualised basis.

In light of this, it's alarming that Remsons Industries' P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Final Word

Remsons Industries' P/E hasn't come down all the way after its stock plunged. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Remsons Industries revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Remsons Industries (2 are a bit unpleasant!) that you need to be mindful of.

You might be able to find a better investment than Remsons Industries. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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