Pinning Down Pritika Engineering Components Limited's (NSE:PRITIKA) P/E Is Difficult Right Now

Simply Wall St · 03/11 00:24

Pritika Engineering Components Limited's (NSE:PRITIKA) price-to-earnings (or "P/E") ratio of 53.2x might make it look like a strong sell right now compared to the market in India, where around half of the companies have P/E ratios below 25x and even P/E's below 15x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Earnings have risen at a steady rate over the last year for Pritika Engineering Components, which is generally not a bad outcome. One possibility is that the P/E is high because investors think this good earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Pritika Engineering Components

pe-multiple-vs-industry
NSEI:PRITIKA Price to Earnings Ratio vs Industry March 11th 2025
Although there are no analyst estimates available for Pritika Engineering Components, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Pritika Engineering Components' Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Pritika Engineering Components' to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 6.8%. However, this wasn't enough as the latest three year period has seen an unpleasant 54% overall drop in EPS. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Comparing that to the market, which is predicted to deliver 25% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we find it concerning that Pritika Engineering Components is trading at a P/E higher than the market. 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 heavily on the share price eventually.

The Key Takeaway

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Pritika Engineering Components revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 2 warning signs for Pritika Engineering Components you should be aware of, and 1 of them is concerning.

You might be able to find a better investment than Pritika Engineering Components. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).