Rana Sugars Limited (NSE:RANASUG) Stock Catapults 53% Though Its Price And Business Still Lag The Market

Despite an already strong run, Rana Sugars Limited (NSE:RANASUG) shares have been powering on, with a gain of 53% in the last thirty days. The last 30 days were the cherry on top of the stock's 471% gain in the last year, which is nothing short of spectacular.

Although its price has surged higher, Rana Sugars' price-to-earnings (or "P/E") ratio of 2.3x might still 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 22x and even P/E's above 48x are quite common. 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.

For instance, Rana Sugars' receding earnings in recent times would have to be some food for thought. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. 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.

Check out our latest analysis for Rana Sugars

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

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, Rana Sugars would need to produce anemic growth that's substantially trailing the market.

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 41%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 27% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Rana Sugars 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.

What We Can Learn From Rana Sugars' P/E?

Shares in Rana Sugars are going to need a lot more upward momentum to get the company's P/E out of its slump. 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.

As we suspected, our examination of Rana Sugars 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.

Plus, you should also learn about these 4 warning signs we've spotted with Rana Sugars.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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