Investors Give Suntech Infra Solutions Limited (NSE:SUNTECH) Shares A 26% Hiding
To the annoyance of some shareholders, Suntech Infra Solutions Limited (NSE:SUNTECH) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.
After such a large drop in price, Suntech Infra Solutions' price-to-earnings (or "P/E") ratio of 6.2x might make it look like a strong buy right now compared to the market in India, where around half of the companies have P/E ratios above 26x and even P/E's above 49x 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 so limited.
For instance, Suntech Infra Solutions' receding earnings in recent times would have to be some food for thought. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.
See our latest analysis for Suntech Infra Solutions
Is There Any Growth For Suntech Infra Solutions?
There's an inherent assumption that a company should far underperform the market for P/E ratios like Suntech Infra Solutions' to be considered reasonable.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 1.2%. Even so, admirably EPS has lifted 200% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.
Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's noticeably more attractive on an annualised basis.
In light of this, it's peculiar that Suntech Infra Solutions' P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.
The Final Word
Suntech Infra Solutions' P/E looks about as weak as its stock price lately. 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 Suntech Infra Solutions currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.
And what about other risks? Every company has them, and we've spotted 5 warning signs for Suntech Infra Solutions (of which 3 can't be ignored!) you should know about.
You might be able to find a better investment than Suntech Infra Solutions. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.