Filatex Fashions Limited (NSE:FILATFASH) Shares May Have Slumped 26% But Getting In Cheap Is Still Unlikely

The Filatex Fashions Limited (NSE:FILATFASH) share price has fared very poorly over the last month, falling by a substantial 26%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 59% loss during that time.

Even after such a large drop in price, Filatex Fashions may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 39.9x, since almost half of all companies in India have P/E ratios under 26x and even P/E's lower than 14x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

As an illustration, earnings have deteriorated at Filatex Fashions over the last year, which is not ideal at all. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

Check out our latest analysis for Filatex Fashions

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 Filatex Fashions' earnings, revenue and cash flow.

How Is Filatex Fashions' Growth Trending?

In order to justify its P/E ratio, Filatex Fashions would need to produce outstanding growth well in excess of 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 17%. As a result, earnings from three years ago have also fallen 94% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's an unpleasant look.

In light of this, it's alarming that Filatex Fashions' P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Filatex Fashions' P/E

A significant share price dive has done very little to deflate Filatex Fashions' very lofty P/E. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Filatex Fashions currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you settle on your opinion, we've discovered 1 warning sign for Filatex Fashions that you should be aware of.

You might be able to find a better investment than Filatex Fashions. 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.