Take Care Before Jumping Onto RBM Infracon Limited (NSE:RBMINFRA) Even Though It's 53% Cheaper

The RBM Infracon Limited (NSE:RBMINFRA) share price has fared very poorly over the last month, falling by a substantial 53%. For any long-term shareholders, the last month ends a year to forget by locking in a 50% share price decline.

Although its price has dipped substantially, RBM Infracon may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 13.8x, since almost half of all companies in India have P/E ratios greater than 27x and even P/E's higher than 51x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

RBM Infracon has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

View our latest analysis for RBM Infracon

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 RBM Infracon's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as RBM Infracon's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a worthy increase of 10%. This was backed up an excellent period prior to see EPS up by 638% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 26% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that RBM Infracon's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On RBM Infracon's P/E

RBM Infracon's P/E has taken a tumble along with its share price. 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.

Our examination of RBM Infracon revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for RBM Infracon that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.