Syngene International Limited's (NSE:SYNGENE) Popularity With Investors Is Under Threat From Overpricing

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 27x, you may consider Syngene International Limited (NSE:SYNGENE) as a stock to avoid entirely with its 55.2x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

With earnings growth that's inferior to most other companies of late, Syngene International has been relatively sluggish. One possibility is that the P/E is high because investors think this lacklustre earnings performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Syngene International

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

How Is Syngene International's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Syngene International's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. Regardless, EPS has managed to lift by a handy 23% in aggregate from three years ago, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 20% as estimated by the eight analysts watching the company. With the market predicted to deliver 25% growth , the company is positioned for a weaker earnings result.

With this information, we find it concerning that Syngene International is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

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.

Our examination of Syngene International's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It is also worth noting that we have found 1 warning sign for Syngene International that you need to take into consideration.

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).

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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.