Little Excitement Around Avonmore Capital & Management Services Limited's (NSE:AVONMORE) Earnings As Shares Take 25% Pounding

Avonmore Capital & Management Services Limited (NSE:AVONMORE) shares have had a horrible month, losing 25% after a relatively good period beforehand. Looking at the bigger picture, even after this poor month the stock is up 67% in the last year.

Following the heavy fall in price, Avonmore Capital & Management Services' price-to-earnings (or "P/E") ratio of 18.5x might make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 25x and even P/E's above 48x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been quite advantageous for Avonmore Capital & Management Services as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Avonmore Capital & Management Services

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 Avonmore Capital & Management Services' earnings, revenue and cash flow.

Is There Any Growth For Avonmore Capital & Management Services?

There's an inherent assumption that a company should underperform the market for P/E ratios like Avonmore Capital & Management Services' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 134% gain to the company's bottom line. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 29% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

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 understandable that Avonmore Capital & Management Services' 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. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

Avonmore Capital & Management Services' P/E has taken a tumble along with its share price. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Avonmore Capital & Management Services maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. 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.

Plus, you should also learn about these 2 warning signs we've spotted with Avonmore Capital & Management Services (including 1 which is concerning).

If you're unsure about the strength of Avonmore Capital & Management Services' 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.