Investors Don't See Light At End Of Himatsingka Seide Limited's (NSE:HIMATSEIDE) Tunnel And Push Stock Down 28%

Himatsingka Seide Limited (NSE:HIMATSEIDE) shares have had a horrible month, losing 28% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 16% share price drop.

Even after such a large drop in price, Himatsingka Seide may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 18.4x, since almost half of all companies in India have P/E ratios greater than 28x and even P/E's higher than 52x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

For instance, Himatsingka Seide'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. 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 Himatsingka Seide

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 Himatsingka Seide's earnings, revenue and cash flow.

How Is Himatsingka Seide's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Himatsingka Seide's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 35% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 60% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 25% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's understandable that Himatsingka Seide's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Final Word

The softening of Himatsingka Seide's shares means its P/E is now sitting at a pretty low level. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Himatsingka Seide revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. 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 - Himatsingka Seide has 3 warning signs (and 1 which is potentially serious) we think you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.