Little Excitement Around HMA Agro Industries Limited's (NSE:HMAAGRO) Earnings As Shares Take 27% Pounding

HMA Agro Industries Limited (NSE:HMAAGRO) shares have had a horrible month, losing 27% after a relatively good period beforehand. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

Although its price has dipped substantially, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 31x, you may still consider HMA Agro Industries as an attractive investment with its 25.3x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

For example, consider that HMA Agro Industries' financial performance has been poor lately as its earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for HMA Agro Industries

Although there are no analyst estimates available for HMA Agro Industries, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is HMA Agro Industries' Growth Trending?

HMA Agro Industries' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered a frustrating 21% decrease to the company's bottom line. Even so, admirably EPS has lifted 47% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Comparing that to the market, which is predicted to deliver 24% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why HMA Agro Industries 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 Bottom Line On HMA Agro Industries' P/E

HMA Agro Industries' recently weak share price has pulled its P/E below most other companies. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that HMA Agro Industries maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, 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. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 4 warning signs for HMA Agro Industries you should be aware of, and 1 of them doesn't sit too well with us.

If you're unsure about the strength of HMA Agro Industries' 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.