Investors Holding Back On Exide Industries Limited (NSE:EXIDEIND)

With a median price-to-earnings (or "P/E") ratio of close to 32x in India, you could be forgiven for feeling indifferent about Exide Industries Limited's (NSE:EXIDEIND) P/E ratio of 33.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Exide Industries could be doing better as it's been growing earnings less than most other companies lately. One possibility is that the P/E is moderate because investors think this lacklustre earnings performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

View our latest analysis for Exide Industries

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How Is Exide Industries' Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Exide Industries' to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 11%. The latest three year period has also seen a 19% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 23% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 20% per annum growth forecast for the broader market.

In light of this, it's curious that Exide Industries' P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On Exide Industries' 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.

Our examination of Exide Industries' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

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

If these risks are making you reconsider your opinion on Exide Industries, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.