Investors Don't See Light At End Of Ahluwalia Contracts (India) Limited's (NSE:AHLUCONT) Tunnel And Push Stock Down 26%

The Ahluwalia Contracts (India) Limited (NSE:AHLUCONT) share price has fared very poorly over the last month, falling by a substantial 26%. The recent drop has obliterated the annual return, with the share price now down 2.9% over that longer period.

Following the heavy fall in price, Ahluwalia Contracts (India) may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 15.5x, since almost half of all companies in India have P/E ratios greater than 31x and even P/E's higher than 58x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Ahluwalia Contracts (India) has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Ahluwalia Contracts (India)

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ahluwalia Contracts (India).

How Is Ahluwalia Contracts (India)'s Growth Trending?

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

Retrospectively, the last year delivered an exceptional 53% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 178% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 6.5% per year during the coming three years according to the twelve analysts following the company. That's shaping up to be materially lower than the 19% per year growth forecast for the broader market.

With this information, we can see why Ahluwalia Contracts (India) is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Ahluwalia Contracts (India)'s P/E?

Ahluwalia Contracts (India)'s recently weak share price has pulled its P/E below most other companies. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Ahluwalia Contracts (India)'s 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.

It is also worth noting that we have found 1 warning sign for Ahluwalia Contracts (India) that you need to take into consideration.

You might be able to find a better investment than Ahluwalia Contracts (India). 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.