Sangani Hospitals Limited's (NSE:SANGANI) 46% Price Boost Is Out Of Tune With Earnings

Simply Wall St · 10/15 00:01

Sangani Hospitals Limited (NSE:SANGANI) shares have had a really impressive month, gaining 46% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 48%.

In spite of the firm bounce in price, there still wouldn't be many who think Sangani Hospitals' price-to-earnings (or "P/E") ratio of 31.6x is worth a mention when the median P/E in India is similar at about 34x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings growth that's exceedingly strong of late, Sangani Hospitals has been doing very well. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform 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 not quite in favour.

Check out our latest analysis for Sangani Hospitals

pe-multiple-vs-industry
NSEI:SANGANI Price to Earnings Ratio vs Industry October 15th 2024
Although there are no analyst estimates available for Sangani Hospitals, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Does Growth Match The P/E?

Sangani Hospitals' P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a terrific increase of 34%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 58% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 26% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's somewhat alarming that Sangani Hospitals' P/E sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh on the share price eventually.

The Bottom Line On Sangani Hospitals' P/E

Its shares have lifted substantially and now Sangani Hospitals' P/E is also back up to the market median. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Sangani Hospitals revealed its shrinking earnings over the medium-term aren't impacting its P/E as much as we would have predicted, given the market is set to grow. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Plus, you should also learn about these 3 warning signs we've spotted with Sangani Hospitals (including 1 which is a bit concerning).

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