Positive Sentiment Still Eludes Somi Conveyor Beltings Limited (NSE:SOMICONVEY) Following 35% Share Price Slump

The Somi Conveyor Beltings Limited (NSE:SOMICONVEY) share price has softened a substantial 35% over the previous 30 days, handing back much of the gains the stock has made lately. Looking at the bigger picture, even after this poor month the stock is up 48% in the last year.

Following the heavy fall in price, Somi Conveyor Beltings' price-to-earnings (or "P/E") ratio of 10.7x might make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 16x and even P/E's above 39x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings growth that's exceedingly strong of late, Somi Conveyor Beltings has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Somi Conveyor Beltings

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

Is There Any Growth For Somi Conveyor Beltings?

There's an inherent assumption that a company should underperform the market for P/E ratios like Somi Conveyor Beltings' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 53%. Pleasingly, EPS has also lifted 110% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

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

In light of this, it's peculiar that Somi Conveyor Beltings' 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 Final Word

Somi Conveyor Beltings' P/E has taken a tumble along with its share price. 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.

Our examination of Somi Conveyor Beltings 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. 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.

Plus, you should also learn about these 4 warning signs we've spotted with Somi Conveyor Beltings (including 2 which don't sit too well with us).

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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This article by Simply Wall St is general in nature. 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.
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