Market Still Lacking Some Conviction On Shanthala FMCG Products Limited (NSE:SHANTHALA)

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 31x, you may consider Shanthala FMCG Products Limited (NSE:SHANTHALA) as an attractive investment with its 19.4x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's exceedingly strong of late, Shanthala FMCG Products has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Shanthala FMCG Products

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shanthala FMCG Products' earnings, revenue and cash flow.

How Is Shanthala FMCG Products' Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 114% last year. The strong recent performance means it was also able to grow EPS by 1,278% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 24% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Shanthala FMCG Products is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Shanthala FMCG Products' 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 Shanthala FMCG Products currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. 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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Shanthala FMCG Products that 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.