Lakshmi Finance & Industrial Corporation Limited (NSE:LFIC) Not Doing Enough For Some Investors As Its Shares Slump 25%

To the annoyance of some shareholders, Lakshmi Finance & Industrial Corporation Limited (NSE:LFIC) shares are down a considerable 25% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 19% share price drop.

Since its price has dipped substantially, Lakshmi Finance & Industrial may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 6x, since almost half of all companies in India have P/E ratios greater than 25x and even P/E's higher than 47x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

It looks like earnings growth has deserted Lakshmi Finance & Industrial recently, which is not something to boast about. One possibility is that the P/E is low because investors think this benign earnings growth rate will likely underperform the broader market in the near future. 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.

View our latest analysis for Lakshmi Finance & Industrial

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 Lakshmi Finance & Industrial's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Lakshmi Finance & Industrial would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. Although pleasingly EPS has lifted 34% in aggregate from three years ago, notwithstanding the last 12 months. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Lakshmi Finance & Industrial is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

Lakshmi Finance & Industrial's P/E looks about as weak as its stock price lately. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Lakshmi Finance & Industrial 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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Lakshmi Finance & Industrial (of which 1 is a bit unpleasant!) you should know about.

Of course, you might also be able to find a better stock than Lakshmi Finance & Industrial. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.