There's No Escaping Galaxy Surfactants Limited's (NSE:GALAXYSURF) Muted Earnings

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 32x, you may consider Galaxy Surfactants Limited (NSE:GALAXYSURF) as an attractive investment with its 27.3x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Galaxy Surfactants could be doing better as it's been growing earnings less than most other companies lately. The P/E is probably low because investors think this lacklustre earnings performance isn't going to get any better. If you still like the company, you'd be hoping earnings don't get any worse and that you could pick up some stock while it's out of favour.

Check out our latest analysis for Galaxy Surfactants

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Galaxy Surfactants.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, Galaxy Surfactants would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a worthy increase of 6.4%. This was backed up an excellent period prior to see EPS up by 40% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 15% per annum during the coming three years according to the eleven analysts following the company. With the market predicted to deliver 19% growth per annum, the company is positioned for a weaker earnings result.

With this information, we can see why Galaxy Surfactants is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Galaxy Surfactants' P/E?

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 Galaxy Surfactants' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Galaxy Surfactants you should know about.

Of course, you might also be able to find a better stock than Galaxy Surfactants. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.