There's No Escaping PTC India Financial Services Limited's (NSE:PFS) Muted Earnings

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 12x, you may consider PTC India Financial Services Limited (NSE:PFS) as an attractive investment with its 7.8x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

As an illustration, earnings have deteriorated at India Financial Services over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. 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.

Check out our latest analysis for India Financial Services

Does India Financial Services Have A Relatively High Or Low P/E For Its Industry?

It's plausible that India Financial Services' low P/E ratio could be a result of tendencies within its own industry. It turns out the Capital Markets industry in general has a P/E ratio similar to the market, as the graphic below shows. So we'd say there is little merit in the premise that the company's ratio being shaped by its industry at this time. Some industry P/E's don't move around a lot and right now most companies within the Capital Markets industry should be getting propped up. Ultimately though, it's going to be the fundamentals of the business like earnings and growth that count most.

Although there are no analyst estimates available for India Financial Services, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is India Financial Services' Growth Trending?

India Financial Services' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered a frustrating 40% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 71% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to decline by 2.8% over the next year, or less than the company's recent medium-term annualised earnings decline.

In light of this, it's understandable that India Financial Services' P/E sits below the majority of other companies. Nonetheless, with earnings going quickly in reverse, it's not guaranteed that the P/E has found a floor yet. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability, which would be difficult to do with the current market outlook.

The Bottom Line On India Financial Services' P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that India Financial Services maintains its low P/E on the weakness of its recentthree-year earnings being even worse than the forecasts for a struggling market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Although, we would be concerned whether the company can even maintain its medium-term level of performance under these tough market conditions. In the meantime, unless the company's relative performance improves, the share price will hit a barrier around these levels.

It is also worth noting that we have found 5 warning signs for India Financial Services (1 is a bit concerning!) that you need to take into consideration.

You might be able to find a better investment than India Financial Services. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

When trading India Financial Services 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.