Earnings Working Against Ducon Infratechnologies Limited's (NSE:DUCON) Share Price Following 26% Dive

Ducon Infratechnologies Limited (NSE:DUCON) shares have had a horrible month, losing 26% after a relatively good period beforehand. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 15%.

After such a large drop in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 33x, you may consider Ducon Infratechnologies as an attractive investment with its 19.5x 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.

Recent times have been quite advantageous for Ducon Infratechnologies as its earnings have been rising very briskly. 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.

See our latest analysis for Ducon Infratechnologies

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 Ducon Infratechnologies' earnings, revenue and cash flow.

How Is Ducon Infratechnologies' Growth Trending?

Ducon Infratechnologies' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 173%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

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.

With this information, we can see why Ducon Infratechnologies 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 Final Word

Ducon Infratechnologies' P/E has taken a tumble along with its share price. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Ducon Infratechnologies 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.

Before you take the next step, you should know about the 3 warning signs for Ducon Infratechnologies (1 can't be ignored!) that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.