TVS Holdings Limited's (NSE:TVSHLTD) Shares Lagging The Market But So Is The Business

With a price-to-earnings (or "P/E") ratio of 26.2x TVS Holdings Limited (NSE:TVSHLTD) may be sending bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 32x and even P/E's higher than 60x 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 TVS Holdings over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

View our latest analysis for TVS Holdings

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on TVS Holdings' earnings, revenue and cash flow.

Is There Any Growth For TVS Holdings?

There's an inherent assumption that a company should underperform the market for P/E ratios like TVS Holdings' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 24%. Pleasingly, EPS has also lifted 68% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is predicted to deliver 26% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why TVS Holdings is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From TVS Holdings' P/E?

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.

We've established that TVS Holdings maintains its low P/E on the weakness of its recent three-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 2 warning signs for TVS Holdings (1 is significant!) that you need to be mindful of.

Of course, you might also be able to find a better stock than TVS Holdings. 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.