Little Excitement Around BSL Limited's (NSE:BSL) Earnings As Shares Take 27% Pounding

BSL Limited (NSE:BSL) shareholders that were waiting for something to happen have been dealt a blow with a 27% share price drop in the last month. Longer-term shareholders would now have taken a real hit with the stock declining 3.0% in the last year.

Since its price has dipped substantially, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 30x, you may consider BSL as an attractive investment with its 18.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

For instance, BSL's 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. 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.

See our latest analysis for BSL

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

How Is BSL's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as BSL's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 19% decrease to the company's bottom line. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

This is in contrast to the rest of the market, which is expected to grow by 26% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that BSL's P/E sits below the majority of other companies. 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 Final Word

BSL's P/E has taken a tumble along with its share price. 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 BSL 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. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware BSL is showing 5 warning signs in our investment analysis, and 2 of those shouldn't be ignored.

If you're unsure about the strength of BSL's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.