Investors Give Pritika Engineering Components Limited (NSE:PRITIKA) Shares A 27% Hiding

Pritika Engineering Components Limited (NSE:PRITIKA) shares have had a horrible month, losing 27% after a relatively good period beforehand. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 112% in the last twelve months.

Although its price has dipped substantially, Pritika Engineering Components may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 20.9x, since almost half of all companies in India have P/E ratios greater than 29x and even P/E's higher than 54x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

For instance, Pritika Engineering Components' receding earnings in recent times would have to be some food for thought. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for Pritika Engineering Components

Although there are no analyst estimates available for Pritika Engineering Components, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Pritika Engineering Components' Growth Trending?

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

Retrospectively, the last year delivered a frustrating 32% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 366% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 24% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that Pritika Engineering Components is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Pritika Engineering Components' P/E

Pritika Engineering Components' P/E has taken a tumble along with its share price. 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.

We've established that Pritika Engineering Components currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Pritika Engineering Components (3 are concerning) you should be aware of.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.