Earnings Working Against Gandhar Oil Refinery (India) Limited's (NSE:GANDHAR) Share Price Following 25% Dive

Gandhar Oil Refinery (India) Limited (NSE:GANDHAR) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 43% in that time.

Since its price has dipped substantially, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 27x, you may consider Gandhar Oil Refinery (India) as an attractive investment with its 18.8x 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.

For example, consider that Gandhar Oil Refinery (India)'s financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. 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 out of favour.

Check out our latest analysis for Gandhar Oil Refinery (India)

Although there are no analyst estimates available for Gandhar Oil Refinery (India), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Gandhar Oil Refinery (India)'s Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Gandhar Oil Refinery (India)'s is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 60% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 57% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Comparing that to the market, which is predicted to deliver 26% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's understandable that Gandhar Oil Refinery (India)'s P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Bottom Line On Gandhar Oil Refinery (India)'s P/E

Gandhar Oil Refinery (India)'s recently weak share price has pulled its P/E below most other companies. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Gandhar Oil Refinery (India) revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 2 warning signs for Gandhar Oil Refinery (India) that you should be aware of.

If these risks are making you reconsider your opinion on Gandhar Oil Refinery (India), explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.