Take Care Before Diving Into The Deep End On Upsurge Seeds Of Agriculture Limited (NSE:USASEEDS)

Upsurge Seeds Of Agriculture Limited's (NSE:USASEEDS) price-to-earnings (or "P/E") ratio of 22.1x 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 34x and even P/E's above 64x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Earnings have risen firmly for Upsurge Seeds Of Agriculture recently, which is pleasing to see. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

View our latest analysis for Upsurge Seeds Of Agriculture

Although there are no analyst estimates available for Upsurge Seeds Of Agriculture, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For Upsurge Seeds Of Agriculture?

In order to justify its P/E ratio, Upsurge Seeds Of Agriculture would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 26%. Pleasingly, EPS has also lifted 96% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

It's interesting to note that the rest of the market is similarly expected to grow by 26% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we find it odd that Upsurge Seeds Of Agriculture is trading at a P/E lower than the market. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

The Bottom Line On Upsurge Seeds Of Agriculture's P/E

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.

We've established that Upsurge Seeds Of Agriculture currently trades on a lower than expected P/E since its recent three-year growth is in line with the wider market forecast. When we see average earnings with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Upsurge Seeds Of Agriculture (1 doesn't sit too well with us!) that you need to be mindful of.

You might be able to find a better investment than Upsurge Seeds Of Agriculture. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.