Not Many Are Piling Into Shreyans Industries Limited (NSE:SHREYANIND) Just Yet

With a price-to-earnings (or "P/E") ratio of 3.2x Shreyans Industries Limited (NSE:SHREYANIND) may be sending very bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 13x and even P/E's higher than 30x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

For instance, Shreyans Industries' receding earnings in recent times would have to be some food for thought. It might be that many expect the disappointing earnings performance to continue or accelerate, 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 Shreyans Industries

Does Shreyans Industries Have A Relatively High Or Low P/E For Its Industry?

It's plausible that Shreyans Industries' particularly low P/E ratio could be a result of tendencies within its own industry. The image below shows that the Forestry industry as a whole also has a P/E ratio lower than the market. So this goes some way towards explaining the company's ratio right now. In the context of the Forestry industry's current setting, most of its constituents' P/E's would be expected to be toned down. However, what is happening on the company's own income statement is the most important factor to its P/E.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shreyans Industries' earnings, revenue and cash flow.

Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered a frustrating 32% decrease to the company's bottom line. Regardless, EPS has managed to lift by a handy 27% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Weighing the recent medium-term upward earnings trajectory against the broader market's one-year forecast for contraction of 6.5% shows it's a great look while it lasts.

In light of this, it's quite peculiar that Shreyans Industries' P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can maintain its recent positive growth rate in the face of a shrinking broader market.

The Final Word

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Shreyans Industries currently trades on a much lower than expected P/E since its recent three-year earnings growth is beating forecasts for a struggling market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. One major risk is whether its earnings trajectory can keep outperforming under these tough market conditions. It appears many are indeed anticipating earnings instability, because this relative performance should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 3 warning signs for Shreyans Industries you should be aware of.

You might be able to find a better investment than Shreyans Industries. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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