There Is A Reason CIE Automotive India Limited's (NSE:CIEINDIA) Price Is Undemanding

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 30x, you may consider CIE Automotive India Limited (NSE:CIEINDIA) as an attractive investment with its 26x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

CIE Automotive India could be doing better as it's been growing earnings less than most other companies lately. The P/E is probably low because investors think this lacklustre earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for CIE Automotive India

If you'd like to see what analysts are forecasting going forward, you should check out our free report on CIE Automotive India.

How Is CIE Automotive India's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like CIE Automotive India's to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 5.3%. The latest three year period has also seen an excellent 1,388% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 11% per annum during the coming three years according to the six analysts following the company. With the market predicted to deliver 21% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that CIE Automotive India's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From CIE Automotive India's P/E?

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 CIE Automotive India maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for CIE Automotive India that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.