Investors Don't See Light At End Of Surya Roshni Limited's (NSE:SURYAROSNI) Tunnel

With a price-to-earnings (or "P/E") ratio of 18.5x Surya Roshni Limited (NSE:SURYAROSNI) may be sending bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 32x and even P/E's higher than 60x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

While the market has experienced earnings growth lately, Surya Roshni's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still 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

Keen to find out how analysts think Surya Roshni's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About 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.

Retrospectively, the last year delivered a frustrating 3.5% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 86% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 20% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the market is forecast to expand by 26%, which is noticeably more attractive.

With this information, we can see why Surya Roshni is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Surya Roshni's P/E?

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 Surya Roshni maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Surya Roshni with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.