It's Down 25% But Anmol India Limited (NSE:ANMOL) Could Be Riskier Than It Looks

To the annoyance of some shareholders, Anmol India Limited (NSE:ANMOL) shares are down a considerable 25% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 23% in that time.

After such a large drop in price, Anmol India's price-to-earnings (or "P/E") ratio of 9.7x might make it look like a strong buy right now compared to the market in India, where around half of the companies have P/E ratios above 31x and even P/E's above 59x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Earnings have risen firmly for Anmol India recently, which is pleasing to see. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

See our latest analysis for Anmol India

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

What Are Growth Metrics Telling Us About The Low P/E?

Anmol India's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 23% last year. The latest three year period has also seen an excellent 94% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

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

With this information, we find it odd that Anmol India is trading at a P/E lower than the market. It may be that most investors are not convinced the company can maintain recent growth rates.

The Key Takeaway

Shares in Anmol India have plummeted and its P/E is now low enough to touch the ground. 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 Anmol India revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look similar to current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

You always need to take note of risks, for example - Anmol India has 1 warning sign we think you should be aware of.

If you're unsure about the strength of Anmol India's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.