Earnings Working Against Sun TV Network Limited's (NSE:SUNTV) Share Price

With a price-to-earnings (or "P/E") ratio of 16.6x Sun TV Network Limited (NSE:SUNTV) may be sending very bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 34x and even P/E's higher than 68x 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 so limited.

Sun TV Network 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.

See our latest analysis for Sun TV Network

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

Is There Any Growth For Sun TV Network?

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

Retrospectively, the last year delivered a decent 13% gain to the company's bottom line. The latest three year period has also seen a 26% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 7.4% per year during the coming three years according to the eleven analysts following the company. Meanwhile, the rest of the market is forecast to expand by 22% per year, which is noticeably more attractive.

In light of this, it's understandable that Sun TV Network's P/E sits below the majority of other companies. 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 Sun TV Network's P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Sun TV Network'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.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Sun TV Network that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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.

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