There's No Escaping Dwarikesh Sugar Industries Limited's (NSE:DWARKESH) Muted Earnings

With a price-to-earnings (or "P/E") ratio of 8.5x Dwarikesh Sugar Industries Limited (NSE:DWARKESH) 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 40x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

For instance, Dwarikesh Sugar Industries' 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. If you 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 Dwarikesh Sugar Industries

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

Is There Any Growth For Dwarikesh Sugar Industries?

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

Retrospectively, the last year delivered a frustrating 15% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 62% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Comparing that to the market, which is predicted to deliver 10.0% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we are not surprised that Dwarikesh Sugar Industries is trading at a P/E lower than the market. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

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 Dwarikesh Sugar Industries 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.

You should always think about risks. Case in point, we've spotted 5 warning signs for Dwarikesh Sugar Industries you should be aware of, and 1 of them can't be ignored.

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 P/E 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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