Investors Give Nirman Agri Genetics Limited (NSE:NIRMAN) Shares A 27% Hiding

To the annoyance of some shareholders, Nirman Agri Genetics Limited (NSE:NIRMAN) shares are down a considerable 27% in the last month, which continues a horrid run for the company. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 11%.

After such a large drop in price, Nirman Agri Genetics' price-to-earnings (or "P/E") ratio of 5.4x might make it look like a strong buy right now compared to the market in India, where around half of the companies have P/E ratios above 26x and even P/E's above 49x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

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With earnings growth that's exceedingly strong of late, Nirman Agri Genetics has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform 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 Nirman Agri Genetics

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Nirman Agri Genetics' earnings, revenue and cash flow.

How Is Nirman Agri Genetics' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Nirman Agri Genetics' is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered an exceptional 94% gain to the company's bottom line. The latest three year period has also seen an excellent 261% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that Nirman Agri Genetics is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Nirman Agri Genetics' P/E

Having almost fallen off a cliff, Nirman Agri Genetics' share price has pulled its P/E way down as well. 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.

Our examination of Nirman Agri Genetics 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. When we see strong earnings 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 if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 3 warning signs for Nirman Agri Genetics you should be aware of.

If you're unsure about the strength of Nirman Agri Genetics' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.