Not Many Are Piling Into Uttam Sugar Mills Limited (NSE:UTTAMSUGAR) Just Yet

With a price-to-earnings (or "P/E") ratio of 9.8x Uttam Sugar Mills Limited (NSE:UTTAMSUGAR) may be sending very bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 31x and even P/E's higher than 61x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Uttam Sugar Mills has been doing a decent job lately as it's been growing earnings at a reasonable pace. It might be that many expect the respectable earnings performance to degrade, 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.

View our latest analysis for Uttam Sugar Mills

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

How Is Uttam Sugar Mills' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Uttam Sugar Mills' is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered a decent 7.0% gain to the company's bottom line. The latest three year period has also seen an excellent 121% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Uttam Sugar Mills' P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Uttam Sugar Mills' 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 Uttam Sugar Mills currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You need to take note of risks, for example - Uttam Sugar Mills has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.