Maan Aluminium Limited (NSE:MAANALU) May Have Run Too Fast Too Soon With Recent 33% Price Plummet

The Maan Aluminium Limited (NSE:MAANALU) share price has softened a substantial 33% over the previous 30 days, handing back much of the gains the stock has made lately. The last month has meant the stock is now only up 6.8% during the last year.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Maan Aluminium's P/E ratio of 30.6x, since the median price-to-earnings (or "P/E") ratio in India is also close to 32x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

For example, consider that Maan Aluminium's financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Maan Aluminium

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Maan Aluminium will help you shine a light on its historical performance.

Is There Some Growth For Maan Aluminium?

The only time you'd be comfortable seeing a P/E like Maan Aluminium's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered a frustrating 50% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 41% in total over the last three years. 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.

This is in contrast to the rest of the market, which is expected to grow by 26% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Maan Aluminium'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. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Key Takeaway

With its share price falling into a hole, the P/E for Maan Aluminium looks quite average now. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Maan Aluminium currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

You need to take note of risks, for example - Maan Aluminium has 3 warning signs (and 1 which is significant) we think you should know about.

You might be able to find a better investment than Maan Aluminium. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.