Hindware Home Innovation Limited's (NSE:HINDWAREAP) Share Price Is Still Matching Investor Opinion Despite 30% Slump

To the annoyance of some shareholders, Hindware Home Innovation Limited (NSE:HINDWAREAP) shares are down a considerable 30% in the last month, which continues a horrid run for the company. The recent drop has obliterated the annual return, with the share price now down 7.7% over that longer period.

Even after such a large drop in price, Hindware Home Innovation may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 50.1x, since almost half of all companies in India have P/E ratios under 29x and even P/E's lower than 16x 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.

Hindware Home Innovation hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for Hindware Home Innovation

Keen to find out how analysts think Hindware Home Innovation's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Hindware Home Innovation's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Hindware Home Innovation's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 36% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 32% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 119% over the next year. Meanwhile, the rest of the market is forecast to only expand by 24%, which is noticeably less attractive.

In light of this, it's understandable that Hindware Home Innovation's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Hindware Home Innovation's P/E?

Hindware Home Innovation's shares may have retreated, but its P/E is still flying high. 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.

As we suspected, our examination of Hindware Home Innovation's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Hindware Home Innovation you should be aware of, and 1 of them is significant.

You might be able to find a better investment than Hindware Home Innovation. 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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.