It's Down 26% But Tara Chand Logistic Solutions Limited (NSE:TARACHAND) Could Be Riskier Than It Looks

Tara Chand Logistic Solutions Limited (NSE:TARACHAND) shares have had a horrible month, losing 26% after a relatively good period beforehand. Nonetheless, the last 30 days have barely left a scratch on the stock's annual performance, which is up a whopping 348%.

In spite of the heavy fall in price, Tara Chand Logistic Solutions may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 29.7x, since almost half of all companies in India have P/E ratios greater than 34x and even P/E's higher than 64x 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 limited.

Tara Chand Logistic Solutions certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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.

See our latest analysis for Tara Chand Logistic Solutions

Although there are no analyst estimates available for Tara Chand Logistic Solutions, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Tara Chand Logistic Solutions' Growth Trending?

Tara Chand Logistic Solutions' 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 an exceptional 43% gain to the company's bottom line. The latest three year period has also seen an excellent 215% overall rise in EPS, aided 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 25% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that Tara Chand Logistic Solutions is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Tara Chand Logistic Solutions' P/E

The softening of Tara Chand Logistic Solutions' shares means its P/E is now sitting at a pretty low level. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Tara Chand Logistic Solutions currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Tara Chand Logistic Solutions, and understanding these should be part of your investment process.

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.

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