UGRO Capital Limited (NSE:UGROCAP) Could Be Riskier Than It Looks

With a price-to-earnings (or "P/E") ratio of 19.7x UGRO Capital Limited (NSE:UGROCAP) may be sending bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 35x and even P/E's higher than 66x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

UGRO Capital certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for UGRO Capital

If you'd like to see what analysts are forecasting going forward, you should check out our free report on UGRO Capital.

Is There Any Growth For UGRO Capital?

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

If we review the last year of earnings growth, the company posted a terrific increase of 72%. The latest three year period has also seen an excellent 254% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 29% per annum during the coming three years according to the three analysts following the company. With the market only predicted to deliver 20% per year, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that UGRO Capital's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On UGRO Capital's P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of UGRO Capital's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

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

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.