It's Down 26% But Everest Kanto Cylinder Limited (NSE:EKC) Could Be Riskier Than It Looks

Unfortunately for some shareholders, the Everest Kanto Cylinder Limited (NSE:EKC) share price has dived 26% in the last thirty days, prolonging recent pain. Longer-term shareholders would now have taken a real hit with the stock declining 9.2% in the last year.

Even after such a large drop in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 26x, you may still consider Everest Kanto Cylinder as an attractive investment with its 13.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Everest Kanto Cylinder hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Everest Kanto Cylinder

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Does Growth Match The Low P/E?

In order to justify its P/E ratio, Everest Kanto Cylinder would need to produce sluggish growth that's trailing the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 18%. This means it has also seen a slide in earnings over the longer-term as EPS is down 52% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 74% as estimated by the sole analyst watching the company. That's shaping up to be materially higher than the 25% growth forecast for the broader market.

With this information, we find it odd that Everest Kanto Cylinder is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Everest Kanto Cylinder's P/E

Everest Kanto Cylinder's 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 Everest Kanto Cylinder currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook 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, but investors seem to think future earnings could see a lot of volatility.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Everest Kanto Cylinder that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.