Earnings Working Against Usha Martin Limited's (NSE:USHAMART) Share Price

Usha Martin Limited's (NSE:USHAMART) price-to-earnings (or "P/E") ratio of 11x might make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 15x and even P/E's above 37x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

For instance, Usha Martin's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming 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.

View our latest analysis for Usha Martin

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 Usha Martin's earnings, revenue and cash flow.

How Is Usha Martin's Growth Trending?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 69%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

This is in contrast to the rest of the market, which is expected to grow by 9.5% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Usha Martin is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Final Word

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.

We've established that Usha Martin maintains its low P/E on the weakness of its recentthree-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Usha Martin is showing 4 warning signs in our investment analysis, and 1 of those is significant.

Of course, you might also be able to find a better stock than Usha Martin. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

When trading Usha Martin or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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