Balaxi Pharmaceuticals Limited (NSE:BALAXI) Looks Inexpensive After Falling 27% But Perhaps Not Attractive Enough
To the annoyance of some shareholders, Balaxi Pharmaceuticals Limited (NSE:BALAXI) shares are down a considerable 27% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 63% loss during that time.
Following the heavy fall in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 26x, you may consider Balaxi Pharmaceuticals as a highly attractive investment with its 10.2x 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.
For instance, Balaxi Pharmaceuticals' 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 Balaxi Pharmaceuticals
Is There Any Growth For Balaxi Pharmaceuticals?
In order to justify its P/E ratio, Balaxi Pharmaceuticals would need to produce anemic growth that's substantially trailing the market.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 61%. The last three years don't look nice either as the company has shrunk EPS by 76% 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 25% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.
In light of this, it's understandable that Balaxi Pharmaceuticals' 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 Key Takeaway
Having almost fallen off a cliff, Balaxi Pharmaceuticals' share price has pulled its P/E way down as well. 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 Balaxi Pharmaceuticals 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.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Balaxi Pharmaceuticals (at least 2 which are a bit concerning), and understanding them should be part of your investment process.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.
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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.