Lacklustre Performance Is Driving Dalmia Bharat Sugar and Industries Limited's (NSE:DALMIASUG) Low P/E

Dalmia Bharat Sugar and Industries Limited's (NSE:DALMIASUG) price-to-earnings (or "P/E") ratio of 15.7x might make it look like a strong buy right now compared to the market in India, where around half of the companies have P/E ratios above 34x and even P/E's above 66x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With earnings growth that's inferior to most other companies of late, Dalmia Bharat Sugar and Industries has been relatively sluggish. The P/E is probably low because investors think this lacklustre earnings performance isn't going to get any better. If you still like the company, you'd be hoping earnings don't get any worse and that you could pick up some stock while it's out of favour.

Check out our latest analysis for Dalmia Bharat Sugar and Industries

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Does Growth Match The Low P/E?

In order to justify its P/E ratio, Dalmia Bharat Sugar and Industries would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a decent 4.1% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen an unpleasant 1.1% overall drop in EPS. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 6.6% each year as estimated by the lone analyst watching the company. With the market predicted to deliver 20% growth per year, the company is positioned for a weaker earnings result.

With this information, we can see why Dalmia Bharat Sugar and Industries is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

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.

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. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 1 warning sign for Dalmia Bharat Sugar and Industries that you should be aware of.

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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