HBL Engineering Limited's (NSE:HBLENGINE) 26% Cheaper Price Remains In Tune With Earnings

Unfortunately for some shareholders, the HBL Engineering Limited (NSE:HBLENGINE) share price has dived 26% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 17% in that time.

In spite of the heavy fall in price, HBL Engineering may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 37.5x, since almost half of all companies in India have P/E ratios under 24x and even P/E's lower than 14x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Recent times have been quite advantageous for HBL Engineering as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for HBL Engineering

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 HBL Engineering's earnings, revenue and cash flow.

Does Growth Match The High P/E?

HBL Engineering's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered an exceptional 31% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 355% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

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

With this information, we can see why HBL Engineering is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Final Word

Even after such a strong price drop, HBL Engineering's P/E still exceeds the rest of the market significantly. 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.

As we suspected, our examination of HBL Engineering revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for HBL Engineering with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than HBL Engineering. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.