The Ugar Sugar Works Limited's (NSE:UGARSUGAR) Price Is Right But Growth Is Lacking After Shares Rocket 27%

The Ugar Sugar Works Limited (NSE:UGARSUGAR) shareholders have had their patience rewarded with a 27% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 57% in the last year.

In spite of the firm bounce in price, given close to half the companies in India have price-to-earnings ratios (or "P/E's") above 19x, you may still consider Ugar Sugar Works as a highly attractive investment with its 4.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Ugar Sugar Works certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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 Ugar Sugar Works

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

Is There Any Growth For Ugar Sugar Works?

Ugar Sugar Works' P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 182% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. 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 29% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Ugar Sugar Works is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From Ugar Sugar Works' P/E?

Ugar Sugar Works' recent share price jump still sees its P/E sitting firmly flat on the ground. 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.

As we suspected, our examination of Ugar Sugar Works revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, 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 4 warning signs for Ugar Sugar Works (1 shouldn't be ignored!) 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 P/E below 20x.

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This article by Simply Wall St is general in nature. 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.
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