Polyplex Corp stock is down 62% from all-time high. Buy the dip or stay away?

livemint.com:

Polyplex Corporation's share price. The really unlucky ones, who bought the stock in April 2022, are currently sitting on a huge nominal loss of about 62%. Back then the stock was trading around its all-time high of ₹2,813.After an impressive surge of over 40% in the first half of 2022, it has been all downhill for the stock.

Yesterday it closed at ₹1,075. Of course it’s not a ‘real’ loss if the investor doesn't sell but that’s cold comfort in these situations. If the stock is to get back to its all-time high, it will have to shoot up 162%.

Even an optimist would agree this is a tall order. Of course, the stock could recover eventually, and it probably will. But at the moment, no one can see the light at the end of the tunnel.

There are two main reasons for the fall in the stock price. Let’s examine them and consider the fundamental outlook. At the end of the day, earnings drive stock prices.

No stock can continue to increase in price indefinitely if the company isn’t growing its earnings. This has been a problem for Polyplex Corporation for quite a while. If you look at the company’s performance over the last eight quarters, one thing is clear.

Its earnings per share (EPS) peaked in the September 2022 quarter and has been falling ever since. In fact, the EPS has fallen a stunning 87%. In this light, the 62% decline in the stock seems justified.

But what’s the reason for the crash in earnings? Well, the company’s sales haven’t fallen as much as profits over the past year, although the decline has been significant at 25%. The real problem is twofold. One, the company has been unable to control its operating costs beyond a point, in line with falling sales.