Venus Remedies Limited (NSE:VENUSREM) Not Doing Enough For Some Investors As Its Shares Slump 26%

The Venus Remedies Limited (NSE:VENUSREM) share price has fared very poorly over the last month, falling by a substantial 26%. Still, a bad month hasn't completely ruined the past year with the stock gaining 86%, which is great even in a bull market.

After such a large drop in price, Venus Remedies may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 13.3x, since almost half of all companies in India have P/E ratios greater than 30x and even P/E's higher than 55x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for Venus Remedies as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 Venus Remedies

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 Venus Remedies' earnings, revenue and cash flow.

Is There Any Growth For Venus Remedies?

In order to justify its P/E ratio, Venus Remedies would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 84% gain to the company's bottom line. The latest three year period has also seen a 26% overall rise in EPS, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 24% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Venus Remedies is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

Shares in Venus Remedies have plummeted and its P/E is now low enough to touch the ground. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Venus Remedies revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Venus Remedies, and understanding should be part of your investment process.

Of course, you might also be able to find a better stock than Venus Remedies. 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.