Supriya Lifescience Limited's (NSE:SUPRIYA) Shareholders Might Be Looking For Exit

It's not a stretch to say that Supriya Lifescience Limited's (NSE:SUPRIYA) price-to-earnings (or "P/E") ratio of 31.1x right now seems quite "middle-of-the-road" compared to the market in India, where the median P/E ratio is around 30x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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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.

See 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.

How Is Supriya Lifescience's Growth Trending?

The only time you'd be comfortable seeing a P/E like Supriya Lifescience's is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 58% last year. As a result, it also grew EPS by 24% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 5.4% as estimated by the one analyst watching the company. Meanwhile, the rest of the market is forecast to expand by 23%, 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. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Bottom Line On Supriya Lifescience's P/E

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Supriya Lifescience currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. 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.

Plus, you should also learn about this 1 warning sign we've spotted with Supriya Lifescience.

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.