Lacklustre Performance Is Driving InfoBeans Technologies Limited's (NSE:INFOBEAN) 25% Price Drop

InfoBeans Technologies Limited (NSE:INFOBEAN) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 24% in that time.

After such a large drop in price, InfoBeans Technologies may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 21.8x, since almost half of all companies in India have P/E ratios greater than 30x and even P/E's higher than 56x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

InfoBeans Technologies certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for InfoBeans Technologies

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

How Is InfoBeans Technologies' Growth Trending?

In order to justify its P/E ratio, InfoBeans Technologies would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 62%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 26% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

In contrast to the company, the rest of the market is expected to grow by 26% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's understandable that InfoBeans Technologies' P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Final Word

The softening of InfoBeans Technologies' shares means its P/E is now sitting at a pretty low level. 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.

We've established that InfoBeans Technologies maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for InfoBeans Technologies that you should be aware of.

If you're unsure about the strength of InfoBeans Technologies' 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.