With A 26% Price Drop For Prince Pipes and Fittings Limited (NSE:PRINCEPIPE) You'll Still Get What You Pay For

Unfortunately for some shareholders, the Prince Pipes and Fittings Limited (NSE:PRINCEPIPE) share price has dived 26% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 50% loss during that time.

Although its price has dipped substantially, Prince Pipes and Fittings may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 44.1x, since almost half of all companies in India have P/E ratios under 27x 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.

While the market has experienced earnings growth lately, Prince Pipes and Fittings' earnings have gone into reverse gear, which is not great. 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.

See our latest analysis for Prince Pipes and Fittings

Keen to find out how analysts think Prince Pipes and Fittings' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Prince Pipes and Fittings' Growth Trending?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 67%. This means it has also seen a slide in earnings over the longer-term as EPS is down 72% 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.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 142% over the next year. That's shaping up to be materially higher than the 26% growth forecast for the broader market.

In light of this, it's understandable that Prince Pipes and Fittings' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

A significant share price dive has done very little to deflate Prince Pipes and Fittings' very lofty P/E. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Prince Pipes and Fittings' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for Prince Pipes and Fittings that we have uncovered.

You might be able to find a better investment than Prince Pipes and Fittings. 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.