Aditya Birla Money Limited's (NSE:BIRLAMONEY) P/E Is On The Mark

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 11x, you may consider Aditya Birla Money Limited (NSE:BIRLAMONEY) as a stock to potentially avoid with its 17.1x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Recent times have been advantageous for Aditya Birla Money as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Aditya Birla Money

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Is There Enough Growth For Aditya Birla Money?

Aditya Birla Money's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered an exceptional 20% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 62% in total over the last three years. 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 demonstrate the company's robustness, generating growth of 16% as estimated by the sole analyst watching the company. With the rest of the market predicted to shrink by 2.8%, that would be a fantastic result.

In light of this, it's understandable that Aditya Birla Money's P/E sits above the majority of other companies. Right now, investors are willing to pay more for a stock that is shaping up to buck the trend of the broader market going backwards.

What We Can Learn From Aditya Birla Money's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Aditya Birla Money's analyst forecasts revealed that its superior earnings outlook against a shaky market is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. We still remain cautious about the company's ability to keep swimming against the current of the broader market turmoil. Otherwise, it's hard to see the share price falling strongly in the near future under the current growth expectations.

Before you settle on your opinion, we've discovered 3 warning signs for Aditya Birla Money that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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