Dalmia Bharat Sugar and Industries Limited's (NSE:DALMIASUG) Share Price Boosted 27% But Its Business Prospects Need A Lift Too

Dalmia Bharat Sugar and Industries Limited (NSE:DALMIASUG) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

In spite of the firm bounce in price, Dalmia Bharat Sugar and Industries may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 11.3x, since almost half of all companies in India have P/E ratios greater than 26x and even P/E's higher than 49x 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 so limited.

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Dalmia Bharat Sugar and Industries could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Dalmia Bharat Sugar and Industries

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

Is There Any Growth For Dalmia Bharat Sugar and Industries?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Dalmia Bharat Sugar and Industries' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 11% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 6.9% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 8.6% over the next year. With the market predicted to deliver 25% growth , the company is positioned for a weaker earnings result.

In light of this, it's understandable that Dalmia Bharat Sugar and Industries' P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Even after such a strong price move, Dalmia Bharat Sugar and Industries' P/E still trails the rest of the market significantly. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Dalmia Bharat Sugar and Industries maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Dalmia Bharat Sugar and Industries 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.