The Market Doesn't Like What It Sees From Vinyl Chemicals (India) Limited's (NSE:VINYLINDIA) Earnings Yet As Shares Tumble 27%

Vinyl Chemicals (India) Limited (NSE:VINYLINDIA) shareholders that were waiting for something to happen have been dealt a blow with a 27% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 39% in that time.

Following the heavy fall in price, Vinyl Chemicals (India)'s price-to-earnings (or "P/E") ratio of 19.5x 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 27x and even P/E's above 51x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

The recent earnings growth at Vinyl Chemicals (India) would have to be considered satisfactory if not spectacular. It might be that many expect the respectable earnings performance to degrade, which has repressed the P/E. 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.

Check out our latest analysis for Vinyl Chemicals (India)

Although there are no analyst estimates available for Vinyl Chemicals (India), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For Vinyl Chemicals (India)?

In order to justify its P/E ratio, Vinyl Chemicals (India) would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a decent 4.3% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen an unpleasant 6.7% overall drop in EPS. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 26% shows it's an unpleasant look.

In light of this, it's understandable that Vinyl Chemicals (India)'s P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Final Word

Vinyl Chemicals (India)'s 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.

As we suspected, our examination of Vinyl Chemicals (India) revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Vinyl Chemicals (India) that you should be aware of.

If these risks are making you reconsider your opinion on Vinyl Chemicals (India), explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.