Even With A 26% Surge, Cautious Investors Are Not Rewarding Sakuma Exports Limited's (NSE:SAKUMA) Performance Completely

Sakuma Exports Limited (NSE:SAKUMA) shares have continued their recent momentum with a 26% gain in the last month alone. The last month tops off a massive increase of 106% 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 Sakuma Exports as an attractive investment with its 26.4x 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, Sakuma Exports' 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.

View our latest analysis for Sakuma Exports

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 Sakuma Exports' earnings, revenue and cash flow.

How Is Sakuma Exports' Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 24%. Still, the latest three year period has seen an excellent 99% overall rise in EPS, in spite of its unsatisfying short-term performance. 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.

It's interesting to note that the rest of the market is similarly expected to grow by 25% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Sakuma Exports' P/E sits below the majority of other companies. It may be that most investors are not convinced the company can maintain recent growth rates.

The Final Word

Despite Sakuma Exports' shares building up a head of steam, its P/E still lags most other companies. 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 Sakuma Exports currently trades on a lower than expected P/E since its recent three-year growth is in line with the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

It is also worth noting that we have found 2 warning signs for Sakuma Exports (1 is potentially serious!) that you need to take into consideration.

Of course, you might also be able to find a better stock than Sakuma Exports. 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.