Investors Don't See Light At End Of Thangamayil Jewellery Limited's (NSE:THANGAMAYL) Tunnel

With a price-to-earnings (or "P/E") ratio of 25.5x Thangamayil Jewellery Limited (NSE:THANGAMAYL) may be sending bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 29x and even P/E's higher than 54x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been advantageous for Thangamayil Jewellery as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

See our latest analysis for Thangamayil Jewellery

Keen to find out how analysts think Thangamayil Jewellery's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The Low P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 122%. Pleasingly, EPS has also lifted 55% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 11% as estimated by the two analysts watching the company. With the market predicted to deliver 24% growth , the company is positioned for a weaker earnings result.

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

The Final Word

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.

As we suspected, our examination of Thangamayil Jewellery's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for Thangamayil Jewellery that we have uncovered.

If these risks are making you reconsider your opinion on Thangamayil Jewellery, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.