Panache Digilife Limited (NSE:PANACHE) Shares Slammed 26% But Getting In Cheap Might Be Difficult Regardless

The Panache Digilife Limited (NSE:PANACHE) share price has fared very poorly over the last month, falling by a substantial 26%. The good news is that in the last year, the stock has shone bright like a diamond, gaining 134%.

In spite of the heavy fall in price, Panache Digilife may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 69.3x, since almost half of all companies in India have P/E ratios under 26x and even P/E's lower than 15x are not unusual. 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.

We've discovered 3 warning signs about Panache Digilife. View them for free.

Recent times have been quite advantageous for Panache Digilife as its earnings have been rising very briskly. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Panache Digilife

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

Is There Enough Growth For Panache Digilife?

Panache Digilife's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 460% last year. The latest three year period has also seen an excellent 252% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is only predicted to deliver 24% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we can see why Panache Digilife is trading at such a high P/E compared to the market. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What We Can Learn From Panache Digilife's P/E?

Even after such a strong price drop, Panache Digilife's P/E still exceeds the rest of the market significantly. 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 Panache Digilife revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with Panache Digilife (including 1 which makes us a bit uncomfortable).

If you're unsure about the strength of Panache Digilife's 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.