The Market Doesn't Like What It Sees From Mahindra & Mahindra Limited's (NSE:M&M) Earnings Yet

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 33x, you may consider Mahindra & Mahindra Limited (NSE:M&M) as an attractive investment with its 28.7x 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.

Mahindra & Mahindra could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Mahindra & Mahindra

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

Is There Any Growth For Mahindra & Mahindra?

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

Retrospectively, the last year delivered a frustrating 4.9% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 147% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 6.7% per annum over the next three years. With the market predicted to deliver 20% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Mahindra & Mahindra's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

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 Mahindra & Mahindra maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 3 warning signs for Mahindra & Mahindra you should be aware of, and 1 of them shouldn't be ignored.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.