Lacklustre Performance Is Driving Sreeleathers Limited's (NSE:SREEL) Low P/E

With a price-to-earnings (or "P/E") ratio of 21.7x Sreeleathers Limited (NSE:SREEL) may be sending bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 33x and even P/E's higher than 62x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

For instance, Sreeleathers' receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Sreeleathers

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 Sreeleathers' earnings, revenue and cash flow.

How Is Sreeleathers' Growth Trending?

In order to justify its P/E ratio, Sreeleathers would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 5.8% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 87% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 26% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Sreeleathers is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Sreeleathers' P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Sreeleathers revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for Sreeleathers 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.