Market Cool On Shigan Quantum Technologies Limited's (NSE:SHIGAN) Earnings Pushing Shares 29% Lower

Shigan Quantum Technologies Limited (NSE:SHIGAN) shares have retraced a considerable 29% in the last month, reversing a fair amount of their solid recent performance. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

After such a large drop in price, Shigan Quantum Technologies may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 15.2x, since almost half of all companies in India have P/E ratios greater than 21x and even P/E's higher than 45x 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.

With earnings growth that's exceedingly strong of late, Shigan Quantum Technologies has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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.

See our latest analysis for Shigan Quantum Technologies

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

How Is Shigan Quantum Technologies' Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 175% last year. The strong recent performance means it was also able to grow EPS by 115% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 22% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Shigan Quantum Technologies is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Key Takeaway

The softening of Shigan Quantum Technologies' shares means its P/E is now sitting at a pretty low level. 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.

Our examination of Shigan Quantum Technologies revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Shigan Quantum Technologies (at least 1 which doesn't sit too well with us), and understanding them should be part of your investment process.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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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.