Some Indo Us Bio-Tech Limited (NSE:INDOUS) Shareholders Look For Exit As Shares Take 26% Pounding

To the annoyance of some shareholders, Indo Us Bio-Tech Limited (NSE:INDOUS) shares are down a considerable 26% in the last month, which continues a horrid run for the company. 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.

Even after such a large drop in price, it's still not a stretch to say that Indo Us Bio-Tech's price-to-earnings (or "P/E") ratio of 25.1x right now seems quite "middle-of-the-road" compared to the market in India, where the median P/E ratio is around 25x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been quite advantageous for Indo Us Bio-Tech as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

Check out our latest analysis for Indo Us Bio-Tech

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 Indo Us Bio-Tech's earnings, revenue and cash flow.

Is There Some Growth For Indo Us Bio-Tech?

There's an inherent assumption that a company should be matching the market for P/E ratios like Indo Us Bio-Tech's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 67% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 60% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's noticeably less attractive on an annualised basis.

In light of this, it's curious that Indo Us Bio-Tech's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

The Bottom Line On Indo Us Bio-Tech's P/E

Following Indo Us Bio-Tech's share price tumble, its P/E is now hanging on to the median market P/E. 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 Indo Us Bio-Tech currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are uncomfortable with the P/E as this earnings performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 2 warning signs for Indo Us Bio-Tech (1 is significant!) that we have uncovered.

If you're unsure about the strength of Indo Us Bio-Tech's 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.