Investors Don't See Light At End Of Manappuram Finance Limited's (NSE:MANAPPURAM) Tunnel And Push Stock Down 27%

Manappuram Finance Limited (NSE:MANAPPURAM) shareholders that were waiting for something to happen have been dealt a blow with a 27% share price drop in the last month. Indeed, the recent drop has reduced its annual gain to a relatively sedate 8.4% over the last twelve months.

After such a large drop in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 34x, you may consider Manappuram Finance as a highly attractive investment with its 5.8x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

With earnings growth that's superior to most other companies of late, Manappuram Finance has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Manappuram Finance

Keen to find out how analysts think Manappuram Finance's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Manappuram Finance's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 31% gain to the company's bottom line. EPS has also lifted 25% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 11% each year over the next three years. That's shaping up to be materially lower than the 20% per annum growth forecast for the broader market.

With this information, we can see why Manappuram Finance 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 Manappuram Finance's P/E

Manappuram Finance's P/E looks about as weak as its stock price lately. 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 Manappuram Finance maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Manappuram Finance (1 is potentially serious!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Manappuram Finance, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.