CESC Limited's (NSE:CESC) 28% Dip In Price Shows Sentiment Is Matching Earnings

The CESC Limited (NSE:CESC) share price has fared very poorly over the last month, falling by a substantial 28%. The recent drop has obliterated the annual return, with the share price now down 7.5% over that longer period.

Since its price has dipped substantially, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 30x, you may consider CESC as a highly attractive investment with its 12.6x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

CESC could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still 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 CESC

Want the full picture on analyst estimates for the company? Then our free report on CESC will help you uncover what's on the horizon.

Is There Any Growth For CESC?

CESC's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. The longer-term trend has been no better as the company has no earnings growth to show for over the last three years either. So it seems apparent to us that the company has struggled to grow earnings meaningfully over that time.

Looking ahead now, EPS is anticipated to climb by 10% during the coming year according to the eight analysts following the company. That's shaping up to be materially lower than the 26% growth forecast for the broader market.

In light of this, it's understandable that CESC's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Shares in CESC have plummeted and its P/E is now low enough to touch the ground. 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 CESC's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with CESC.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.