Vishnu Prakash R Punglia Limited (NSE:VPRPL) Looks Inexpensive After Falling 28% But Perhaps Not Attractive Enough

The Vishnu Prakash R Punglia Limited (NSE:VPRPL) share price has fared very poorly over the last month, falling by a substantial 28%. Indeed, the recent drop has reduced its annual gain to a relatively sedate 2.1% over the last twelve months.

In spite of the heavy fall in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 29x, you may still consider Vishnu Prakash R Punglia as an attractive investment with its 24.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

For instance, Vishnu Prakash R Punglia's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. 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 Vishnu Prakash R Punglia

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

How Is Vishnu Prakash R Punglia's Growth Trending?

In order to justify its P/E ratio, Vishnu Prakash R Punglia would need to produce sluggish growth that's trailing the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 3.9%. Still, the latest three year period has seen an excellent 65% overall rise in EPS, in spite of its unsatisfying short-term performance. 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.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Vishnu Prakash R Punglia is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

The softening of Vishnu Prakash R Punglia's shares means its P/E is now sitting at a pretty low level. 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.

We've established that Vishnu Prakash R Punglia maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You need to take note of risks, for example - Vishnu Prakash R Punglia has 2 warning signs (and 1 which is significant) we think you should know about.

You might be able to find a better investment than Vishnu Prakash R Punglia. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.