Neuland Laboratories Limited's (NSE:NEULANDLAB) Share Price Is Still Matching Investor Opinion Despite 25% Slump

Unfortunately for some shareholders, the Neuland Laboratories Limited (NSE:NEULANDLAB) share price has dived 25% in the last thirty days, prolonging recent pain. Looking at the bigger picture, even after this poor month the stock is up 49% in the last year.

Although its price has dipped substantially, given close to half the companies in India have price-to-earnings ratios (or "P/E's") below 24x, you may still consider Neuland Laboratories as a stock to avoid entirely with its 45.4x 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 so lofty.

Neuland Laboratories could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

View our latest analysis for Neuland Laboratories

Keen to find out how analysts think Neuland Laboratories' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Neuland Laboratories?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Neuland Laboratories' to be considered reasonable.

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 5.4%. Even so, admirably EPS has lifted 405% in aggregate from three years ago, notwithstanding the last 12 months. 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.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 38% over the next year. Meanwhile, the rest of the market is forecast to only expand by 25%, which is noticeably less attractive.

With this information, we can see why Neuland Laboratories is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Neuland Laboratories' P/E

Even after such a strong price drop, Neuland Laboratories' P/E still exceeds the rest of the market significantly. 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 Neuland Laboratories maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about this 1 warning sign we've spotted with Neuland Laboratories.

Of course, you might also be able to find a better stock than Neuland Laboratories. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.