V.S.T. Tillers Tractors Limited (NSE:VSTTILLERS) Shares Slammed 28% But Getting In Cheap Might Be Difficult Regardless

The V.S.T. Tillers Tractors Limited (NSE:VSTTILLERS) 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 3.7% over the last twelve months.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about V.S.T. Tillers Tractors' P/E ratio of 28.2x, since the median price-to-earnings (or "P/E") ratio in India is also close to 26x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

While the market has experienced earnings growth lately, V.S.T. Tillers Tractors' earnings have gone into reverse gear, which is not great. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for V.S.T. Tillers Tractors

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Does Growth Match The P/E?

In order to justify its P/E ratio, V.S.T. Tillers Tractors would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a frustrating 18% decrease to the company's bottom line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 15% overall rise in EPS. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 26% as estimated by the three analysts watching the company. That's shaping up to be similar to the 26% growth forecast for the broader market.

With this information, we can see why V.S.T. Tillers Tractors is trading at a fairly similar P/E to the market. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What We Can Learn From V.S.T. Tillers Tractors' P/E?

Following V.S.T. Tillers Tractors' share price tumble, its P/E is now hanging on to the median market P/E. 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.S.T. Tillers Tractors maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

We don't want to rain on the parade too much, but we did also find 1 warning sign for V.S.T. Tillers Tractors that you need to be mindful of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.