There's No Escaping Shriram Pistons & Rings Limited's (NSE:SHRIPISTON) Muted Earnings Despite A 29% Share Price Rise

Despite an already strong run, Shriram Pistons & Rings Limited (NSE:SHRIPISTON) shares have been powering on, with a gain of 29% in the last thirty days. The last month tops off a massive increase of 269% in the last year.

In spite of the firm bounce in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 32x, you may still consider Shriram Pistons & Rings as an attractive investment with its 22.8x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With earnings growth that's superior to most other companies of late, Shriram Pistons & Rings has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Shriram Pistons & Rings

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shriram Pistons & Rings.

Does Growth Match The Low P/E?

Shriram Pistons & Rings' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered an exceptional 63% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 766% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 18% over the next year. That's shaping up to be materially lower than the 24% growth forecast for the broader market.

With this information, we can see why Shriram Pistons & Rings is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Shriram Pistons & Rings' P/E

Shriram Pistons & Rings' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Shriram Pistons & Rings' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Shriram Pistons & Rings with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than Shriram Pistons & Rings. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.