Not Many Are Piling Into Basilic Fly Studio Limited (NSE:BASILIC) Stock Yet As It Plummets 27%

Basilic Fly Studio Limited (NSE:BASILIC) shares have had a horrible month, losing 27% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 13% share price drop.

After such a large drop in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 28x, you may consider Basilic Fly Studio as an attractive investment with its 22.3x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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As an illustration, earnings have deteriorated at Basilic Fly Studio over the last year, which is not ideal at all. 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. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Basilic Fly Studio

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

Is There Any Growth For Basilic Fly Studio?

There's an inherent assumption that a company should underperform the market for P/E ratios like Basilic Fly Studio's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 9.8%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 2,939% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Basilic Fly Studio's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Basilic Fly Studio's P/E has taken a tumble along with its share price. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Basilic Fly Studio revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Basilic Fly Studio (1 makes us a bit uncomfortable) you should be aware of.

If these risks are making you reconsider your opinion on Basilic Fly Studio, 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.