It's Down 33% But Ashapura Minechem Limited (NSE:ASHAPURMIN) Could Be Riskier Than It Looks

Ashapura Minechem Limited (NSE:ASHAPURMIN) shares have had a horrible month, losing 33% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 11% in that time.

In spite of the heavy fall in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 25x, you may still consider Ashapura Minechem as a highly attractive investment with its 11.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Earnings have risen at a steady rate over the last year for Ashapura Minechem, which is generally not a bad outcome. One possibility is that the P/E is low because investors think this good earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

See our latest analysis for Ashapura Minechem

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 Ashapura Minechem's earnings, revenue and cash flow.

Is There Any Growth For Ashapura Minechem?

Ashapura Minechem's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Retrospectively, the last year delivered a decent 5.7% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 138% 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.

Comparing that to the market, which is only predicted to deliver 25% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it odd that Ashapura Minechem is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Shares in Ashapura Minechem have plummeted and its P/E is now low enough to touch the ground. 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 Ashapura Minechem currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Before you take the next step, you should know about the 4 warning signs for Ashapura Minechem (2 are concerning!) that we have uncovered.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.