Sangani Hospitals Limited's (NSE:SANGANI) Business And Shares Still Trailing The Market

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 34x, you may consider Sangani Hospitals Limited (NSE:SANGANI) as an attractive investment with its 20.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been quite advantageous for Sangani Hospitals as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Sangani Hospitals

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

How Is Sangani Hospitals' Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 32%. Still, incredibly EPS has fallen 58% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 26% shows it's an unpleasant look.

In light of this, it's understandable that Sangani Hospitals' P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

What We Can Learn From Sangani Hospitals' P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Sangani Hospitals revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for Sangani Hospitals you should be aware of, and 1 of them shouldn't be ignored.

You might be able to find a better investment than Sangani Hospitals. 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.