V.L.Infraprojects Limited (NSE:VLINFRA) Stock's 25% Dive Might Signal An Opportunity But It Requires Some Scrutiny

Unfortunately for some shareholders, the V.L.Infraprojects Limited (NSE:VLINFRA) share price has dived 25% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 60% loss during that time.

After such a large drop in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 28x, you may consider V.L.Infraprojects as a highly attractive investment with its 5.8x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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For instance, V.L.Infraprojects' receding earnings in recent times would have to be some food for thought. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

View our latest analysis for V.L.Infraprojects

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 V.L.Infraprojects' earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, V.L.Infraprojects would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 26%. Even so, admirably EPS has lifted 329% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

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.

In light of this, it's peculiar that V.L.Infraprojects' P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From V.L.Infraprojects' P/E?

Having almost fallen off a cliff, V.L.Infraprojects' share price has pulled its P/E way down as well. 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 V.L.Infraprojects 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.

Before you settle on your opinion, we've discovered 3 warning signs for V.L.Infraprojects (2 make us uncomfortable!) that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.