Some Confidence Is Lacking In Dhruv Consultancy Services Limited (NSE:DHRUV) As Shares Slide 26%

The Dhruv Consultancy Services Limited (NSE:DHRUV) share price has fared very poorly over the last month, falling by a substantial 26%. The last month has meant the stock is now only up 6.9% during the last year.

Although its price has dipped substantially, Dhruv Consultancy Services' price-to-earnings (or "P/E") ratio of 31.9x might still make it look like a sell right now compared to the market in India, where around half of the companies have P/E ratios below 25x and even P/E's below 15x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

For example, consider that Dhruv Consultancy Services' financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

Check out our latest analysis for Dhruv Consultancy Services

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Dhruv Consultancy Services' earnings, revenue and cash flow.

Is There Enough Growth For Dhruv Consultancy Services?

In order to justify its P/E ratio, Dhruv Consultancy Services would need to produce impressive growth in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 14%. This means it has also seen a slide in earnings over the longer-term as EPS is down 63% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 25% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's alarming that Dhruv Consultancy Services' P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Dhruv Consultancy Services' P/E?

Dhruv Consultancy Services' P/E hasn't come down all the way after its stock plunged. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Dhruv Consultancy Services currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It is also worth noting that we have found 3 warning signs for Dhruv Consultancy Services that you need to take into consideration.

If you're unsure about the strength of Dhruv Consultancy Services' 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.