Investors Give Pix Transmissions Limited (NSE:PIXTRANS) Shares A 25% Hiding

Pix Transmissions Limited (NSE:PIXTRANS) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

After such a large drop in price, given close to half the companies in India have price-to-earnings ratios (or "P/E's") above 20x, you may consider Pix Transmissions as an attractive investment with its 15.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Earnings have risen at a steady rate over the last year for Pix Transmissions, which is generally not a bad outcome. One possibility is that the P/E is low because investors think this good 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.

See our latest analysis for Pix Transmissions

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

Is There Any Growth For Pix Transmissions?

Pix Transmissions' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered a decent 6.1% gain to the company's bottom line. The latest three year period has also seen an excellent 141% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 22% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that Pix Transmissions 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.

The Bottom Line On Pix Transmissions' P/E

Pix Transmissions' recently weak share price has pulled its P/E below most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Pix Transmissions currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. 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 need to take note of risks, for example - Pix Transmissions has 3 warning signs (and 2 which are potentially serious) we think you should know about.

If you're unsure about the strength of Pix Transmissions' 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.