Sandhar Technologies Limited's (NSE:SANDHAR) 26% Dip In Price Shows Sentiment Is Matching Earnings

To the annoyance of some shareholders, Sandhar Technologies Limited (NSE:SANDHAR) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 37% share price drop.

Following the heavy fall in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 27x, you may consider Sandhar Technologies as an attractive investment with its 15.4x 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.

Sandhar Technologies certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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.

View our latest analysis for Sandhar Technologies

Want the full picture on analyst estimates for the company? Then our free report on Sandhar Technologies will help you uncover what's on the horizon.

Does Growth Match The Low P/E?

Sandhar Technologies' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 36% last year. Pleasingly, EPS has also lifted 76% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 16% over the next year. Meanwhile, the rest of the market is forecast to expand by 26%, which is noticeably more attractive.

With this information, we can see why Sandhar Technologies is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Sandhar Technologies' P/E has taken a tumble along with its share price. 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.

We've established that Sandhar Technologies maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Sandhar Technologies is showing 2 warning signs in our investment analysis, you should know about.

You might be able to find a better investment than Sandhar Technologies. 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).

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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.