Investors Don't See Light At End Of Aurobindo Pharma Limited's (NSE:AUROPHARMA) Tunnel

With a price-to-earnings (or "P/E") ratio of 20.8x Aurobindo Pharma Limited (NSE:AUROPHARMA) may be sending bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 27x and even P/E's higher than 51x 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.

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While the market has experienced earnings growth lately, Aurobindo Pharma'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.

View our latest analysis for Aurobindo Pharma

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

Is There Any Growth For Aurobindo Pharma?

Aurobindo Pharma's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 3.9%. Still, the latest three year period has seen an excellent 64% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should generate growth of 13% each year as estimated by the analysts watching the company. With the market predicted to deliver 20% growth per annum, the company is positioned for a weaker earnings result.

With this information, we can see why Aurobindo Pharma 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.

The Bottom Line On Aurobindo Pharma's P/E

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.

We've established that Aurobindo Pharma 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - Aurobindo Pharma has 1 warning sign we think you should be aware of.

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.