Sentiment Still Eluding Federal-Mogul Goetze (India) Limited (NSE:FMGOETZE)

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 32x, you may consider Federal-Mogul Goetze (India) Limited (NSE:FMGOETZE) as an attractive investment with its 19x 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.

With earnings growth that's exceedingly strong of late, Federal-Mogul Goetze (India) has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Federal-Mogul Goetze (India)

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Federal-Mogul Goetze (India) will help you shine a light on its historical performance.

How Is Federal-Mogul Goetze (India)'s Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Federal-Mogul Goetze (India)'s is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 34% last year. The latest three year period has also seen an excellent 1,285% overall rise in EPS, aided 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.

Comparing that to the market, which is only predicted to deliver 25% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it odd that Federal-Mogul Goetze (India) is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Federal-Mogul Goetze (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 Federal-Mogul Goetze (India) currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Federal-Mogul Goetze (India) with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Federal-Mogul Goetze (India), 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.