What Galaxy Surfactants Limited's (NSE:GALAXYSURF) P/E Is Not Telling You

It's not a stretch to say that Galaxy Surfactants Limited's (NSE:GALAXYSURF) price-to-earnings (or "P/E") ratio of 24.6x right now seems quite "middle-of-the-road" compared to the market in India, where the median P/E ratio is around 25x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

While the market has experienced earnings growth lately, Galaxy Surfactants' earnings have gone into reverse gear, which is not great. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Galaxy Surfactants

Want the full picture on analyst estimates for the company? Then our free report on Galaxy Surfactants will help you uncover what's on the horizon.

How Is Galaxy Surfactants' Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 2.5%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 26% overall rise in EPS. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Shifting to the future, estimates from the eleven analysts covering the company suggest earnings should grow by 14% per year over the next three years. That's shaping up to be materially lower than the 18% per year growth forecast for the broader market.

With this information, we find it interesting that Galaxy Surfactants is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Bottom Line On Galaxy Surfactants' 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 Galaxy Surfactants currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 1 warning sign for Galaxy Surfactants that we have uncovered.

You might be able to find a better investment than Galaxy Surfactants. 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.