Take Care Before Jumping Onto Suraj Estate Developers Limited (NSE:SURAJEST) Even Though It's 33% Cheaper

The Suraj Estate Developers Limited (NSE:SURAJEST) share price has fared very poorly over the last month, falling by a substantial 33%. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 13%.

After such a large drop in price, Suraj Estate Developers may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 17x, since almost half of all companies in India have P/E ratios greater than 29x and even P/E's higher than 55x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

The earnings growth achieved at Suraj Estate Developers over the last year would be more than acceptable for most companies. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Check out our latest analysis for Suraj Estate Developers

Although there are no analyst estimates available for Suraj Estate Developers, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For Suraj Estate Developers?

The only time you'd be truly comfortable seeing a P/E as low as Suraj Estate Developers' is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 28% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 163% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 26% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's peculiar that Suraj Estate Developers' P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Suraj Estate Developers' P/E

Suraj Estate Developers' P/E has taken a tumble along with its share price. 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.

Our examination of Suraj Estate Developers revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Suraj Estate Developers you should know about.

If you're unsure about the strength of Suraj Estate Developers' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.