Indo Count Industries Limited (NSE:ICIL) Looks Inexpensive After Falling 27% But Perhaps Not Attractive Enough

To the annoyance of some shareholders, Indo Count Industries Limited (NSE:ICIL) shares are down a considerable 27% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 23% in that time.

Although its price has dipped substantially, Indo Count Industries may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 15.3x, since almost half of all companies in India have P/E ratios greater than 25x and even P/E's higher than 48x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, Indo Count Industries' earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Indo Count Industries

Want the full picture on analyst estimates for the company? Then our free report on Indo Count Industries will help you uncover what's on the horizon.

Is There Any Growth For Indo Count Industries?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 4.1%. The last three years don't look nice either as the company has shrunk EPS by 1.7% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 21% over the next year. With the market predicted to deliver 25% growth , the company is positioned for a weaker earnings result.

With this information, we can see why Indo Count Industries is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Indo Count Industries' P/E

The softening of Indo Count Industries' 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 Indo Count Industries maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with Indo Count Industries (including 1 which doesn't sit too well with us).

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

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.