Investors Aren't Buying Surya Roshni Limited's (NSE:SURYAROSNI) Earnings

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 30x, you may consider Surya Roshni Limited (NSE:SURYAROSNI) as an attractive investment with its 15.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings growth that's superior to most other companies of late, Surya Roshni has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, 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.

Check out our latest analysis for Surya Roshni

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

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Surya Roshni's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 77% last year. The latest three year period has also seen an excellent 268% overall rise in EPS, aided by its short-term performance. 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 12% during the coming year according to the three analysts following the company. That's shaping up to be materially lower than the 26% growth forecast for the broader market.

With this information, we can see why Surya Roshni 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.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Surya Roshni's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Surya Roshni is showing 1 warning sign in our investment analysis, you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.