Supriya Lifescience Limited (NSE:SUPRIYA) Stock Rockets 26% As Investors Are Less Pessimistic Than Expected

Supriya Lifescience Limited (NSE:SUPRIYA) shares have continued their recent momentum with a 26% gain in the last month alone. The last month tops off a massive increase of 176% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Supriya Lifescience's P/E ratio of 34.4x, since the median price-to-earnings (or "P/E") ratio in India is also close to 33x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Recent times have been advantageous for Supriya Lifescience as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Supriya Lifescience

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

Is There Some Growth For Supriya Lifescience?

Supriya Lifescience's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a terrific increase of 57%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 12% per annum as estimated by the sole analyst watching the company. Meanwhile, the rest of the market is forecast to expand by 20% per annum, which is noticeably more attractive.

In light of this, it's curious that Supriya Lifescience's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On Supriya Lifescience's P/E

Supriya Lifescience's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Supriya Lifescience's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Supriya Lifescience (at least 1 which doesn't sit too well with us), and understanding these should be part of your investment process.

Of course, you might also be able to find a better stock than Supriya Lifescience. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.