Sundram Fasteners Limited's (NSE:SUNDRMFAST) Price In Tune With Earnings

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 31x, you may consider Sundram Fasteners Limited (NSE:SUNDRMFAST) as a stock to potentially avoid with its 43.4x 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 as high as it is.

With earnings growth that's inferior to most other companies of late, Sundram Fasteners has been relatively sluggish. One possibility is that the P/E is high because investors think this lacklustre earnings performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

View our latest analysis for Sundram Fasteners

Keen to find out how analysts think Sundram Fasteners' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Sundram Fasteners?

There's an inherent assumption that a company should outperform the market for P/E ratios like Sundram Fasteners' to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 8.4% last year. This was backed up an excellent period prior to see EPS up by 88% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 25% per year as estimated by the three analysts watching the company. With the market only predicted to deliver 19% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Sundram Fasteners' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

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 Sundram Fasteners maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 1 warning sign for Sundram Fasteners that we have uncovered.

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

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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.