SIL Investments Limited (NSE:SILINV) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Looking back a bit further, it’s encouraging to see the stock is up 88% in the last year.

Even after such a large jump in price, given about half the companies in India have price-to-earnings ratios (or “P/E’s”) above 34x, you may still consider SIL Investments as an attractive investment with its 21.8x 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 limited.

SIL Investments has been doing a decent job lately as it’s been growing earnings at a reasonable pace. One possibility is that the P/E is low because investors think this good earnings growth might actually underperform 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.

See our latest analysis for SIL Investments

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 SIL Investments’ earnings, revenue and cash flow.

Is There Any Growth For SIL Investments?

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

Retrospectively, the last year delivered a decent 4.8% gain to the company’s bottom line. Pleasingly, EPS has also lifted 45% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially higher than the company’s recent medium-term annualised growth rates.

With this information, we can see why SIL Investments 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 SIL Investments’ P/E

Despite SIL Investments’ shares building up a head of steam, its P/E still lags most other companies. 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.

We’ve established that SIL Investments maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn’t great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we’ve spotted 2 warning signs for SIL Investments you should know about.

Of course, you might also be able to find a better stock than SIL Investments. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

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