Investors Aren't Entirely Convinced About Hilton Metal Forging Limited's (NSE:HILTON) Earnings

Hilton Metal Forging Limited's (NSE:HILTON) price-to-earnings (or "P/E") ratio of 7.7x 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 13x and even P/E's above 30x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

It looks like earnings growth has deserted Hilton Metal Forging recently, which is not something to boast about. One possibility is that the P/E is low because investors think this benign earnings growth rate will likely underperform the broader market in the near future. If not, then existing shareholders may be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Hilton Metal Forging

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 Hilton Metal Forging's earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, Hilton Metal Forging would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. That's essentially a continuation of what we've seen over the last three years, as its EPS growth has been virtually non-existent for that entire period. So it seems apparent to us that the company has struggled to grow earnings meaningfully over that time.

In contrast to the company, the rest of the market is expected to decline by 5.2% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.

In light of this, it's quite peculiar that Hilton Metal Forging's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can maintain its recent positive growth rate in the face of a shrinking broader market.

The Final Word

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 Hilton Metal Forging revealed its growing earnings over the medium-term aren't contributing to its P/E anywhere near as much as we would have predicted, given the market is set to shrink. We think potential risks might be placing significant pressure on the P/E ratio and share price. Perhaps there is some hesitation about the company's ability to stay its recent course and swim against the current of the broader market turmoil. It appears many are indeed anticipating earnings instability, because this relative performance should normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Hilton Metal Forging (2 make us uncomfortable!) that you need to be mindful of.

If you're unsure about the strength of Hilton Metal Forging's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

When trading Hilton Metal Forging 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.