Paisalo Digital Limited's (NSE:PAISALO) Stock Retreats 28% But Earnings Haven't Escaped The Attention Of Investors

The Paisalo Digital Limited (NSE:PAISALO) share price has softened a substantial 28% over the previous 30 days, handing back much of the gains the stock has made lately. The good news is that in the last year, the stock has shone bright like a diamond, gaining 128%.

In spite of the heavy fall in price, Paisalo Digital's price-to-earnings (or "P/E") ratio of 33.3x might still make it look like a sell right now compared to the market in India, where around half of the companies have P/E ratios below 28x and even P/E's below 15x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Recent times have been advantageous for Paisalo Digital as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Paisalo Digital

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

How Is Paisalo Digital's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Paisalo Digital's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 86% last year. The latest three year period has also seen an excellent 168% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 38% per year as estimated by the sole analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 20% each year, which is noticeably less attractive.

In light of this, it's understandable that Paisalo Digital's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Paisalo Digital's P/E

Paisalo Digital's P/E hasn't come down all the way after its stock plunged. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Paisalo Digital's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 2 warning signs for Paisalo Digital that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.