TCPL Packaging Limited's (NSE:TCPLPACK) Shares Lagging The Market But So Is The Business

With a price-to-earnings (or "P/E") ratio of 12.2x TCPL Packaging Limited (NSE:TCPLPACK) may be sending bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 16x and even P/E's higher than 38x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

The earnings growth achieved at TCPL Packaging over the last year would be more than acceptable for most companies. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

See our latest analysis for TCPL Packaging

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

How Is TCPL Packaging's Growth Trending?

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

Taking a look back first, we see that the company managed to grow earnings per share by a handy 8.6% last year. EPS has also lifted 6.2% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 9.9% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that TCPL Packaging's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Final Word

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.

We've established that TCPL Packaging maintains its low P/E on the weakness of its recentthree-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 5 warning signs for TCPL Packaging (2 are concerning!) that you need to be mindful of.

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 P/E ratio below 20x).

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This article by Simply Wall St is general in nature. 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.
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