Why Investors Shouldn't Be Surprised By Triveni Engineering & Industries Limited's (NSE:TRIVENI) Low P/E

Triveni Engineering & Industries Limited's ( NSE:TRIVENI ) price-to-earnings (or "P/E") ratio of 18.1x might make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 32x and even P/E's above 59x 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 limited.

While the market has experienced earnings growth lately, Triveni Engineering & Industries' earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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.

See our latest analysis for Triveni Engineering & Industries

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

Does Growth Match The Low P/E?

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

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 73%. Still, the latest three year period has seen an excellent 38% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 20% as estimated by the four analysts watching the company. That's shaping up to be materially lower than the 25% growth forecast for the broader market.

With this information, we can see why Triveni Engineering & Industries is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Triveni Engineering & Industries' P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Triveni Engineering & Industries' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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.

Plus, you should also learn about these 2 warning signs we've spotted with Triveni Engineering & Industries .

If you're unsure about the strength of Triveni Engineering & Industries' business , why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.