Little Excitement Around Accuracy Shipping Limited's (NSE:ACCURACY) Earnings As Shares Take 26% Pounding

Accuracy Shipping Limited (NSE:ACCURACY) shares have had a horrible month, losing 26% after a relatively good period beforehand. Indeed, the recent drop has reduced its annual gain to a relatively sedate 8.1% over the last twelve months.

After such a large drop in price, Accuracy Shipping's price-to-earnings (or "P/E") ratio of 21.5x might make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 35x and even P/E's above 66x 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 limited.

With earnings growth that's exceedingly strong of late, Accuracy Shipping has been doing very well. 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.

View our latest analysis for Accuracy Shipping

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

How Is Accuracy Shipping's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Accuracy Shipping's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 151% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 53% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 26% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we are not surprised that Accuracy Shipping is trading at a P/E lower than the market. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Accuracy Shipping's P/E

Accuracy Shipping's recently weak share price has pulled its P/E below most other companies. 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.

We've established that Accuracy Shipping 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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Accuracy Shipping is showing 3 warning signs in our investment analysis, and 2 of those are concerning.

If you're unsure about the strength of Accuracy Shipping'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.