There's No Escaping Siyaram Silk Mills Limited's (NSE:SIYSIL) Muted Earnings Despite A 49% Share Price Rise

Despite an already strong run, Siyaram Silk Mills Limited (NSE:SIYSIL) shares have been powering on, with a gain of 49% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 90% in the last year.

Although its price has surged higher, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 33x, you may still consider Siyaram Silk Mills as an attractive investment with its 24x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

For instance, Siyaram Silk Mills' receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. 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.

See our latest analysis for Siyaram Silk Mills

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

How Is Siyaram Silk Mills' Growth Trending?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 5.7%. Even so, admirably EPS has lifted 32% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate 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 Siyaram Silk Mills is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

Despite Siyaram Silk Mills' shares building up a head of steam, its P/E still lags most other companies. 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 Siyaram Silk Mills revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

You need to take note of risks, for example - Siyaram Silk Mills has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

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 low P/E).

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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.