It's Down 25% But Crown Lifters Limited (NSE:CROWN) Could Be Riskier Than It Looks

The Crown Lifters Limited (NSE:CROWN) share price has fared very poorly over the last month, falling by a substantial 25%. Longer-term shareholders would now have taken a real hit with the stock declining 2.3% in the last year.

In spite of the heavy fall in price, Crown Lifters may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 10.7x, since almost half of all companies in India have P/E ratios greater than 26x and even P/E's higher than 50x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times have been quite advantageous for Crown Lifters as its earnings have been rising very briskly. 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.

View our latest analysis for Crown Lifters

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

How Is Crown Lifters' Growth Trending?

Crown Lifters' 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.

If we review the last year of earnings growth, the company posted a terrific increase of 160%. The strong recent performance means it was also able to grow EPS by 265% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Crown Lifters 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.

What We Can Learn From Crown Lifters' P/E?

Crown Lifters' P/E looks about as weak as its stock price lately. 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.

We've established that Crown Lifters 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.

You should always think about risks. Case in point, we've spotted 3 warning signs for Crown Lifters you should be aware of.

You might be able to find a better investment than Crown Lifters. 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.