The Market Doesn't Like What It Sees From Maruti Suzuki India Limited's (NSE:MARUTI) Earnings Yet

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 31x, you may consider Maruti Suzuki India Limited (NSE:MARUTI) as an attractive investment with its 26.8x 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.

With earnings growth that's inferior to most other companies of late, Maruti Suzuki India has been relatively sluggish. It seems that many are expecting the uninspiring earnings performance to persist, which has repressed the P/E. If you still like the company, you'd be hoping earnings don't get any worse and that you could pick up some stock while it's out of favour.

Check out our latest analysis for Maruti Suzuki India

Want the full picture on analyst estimates for the company? Then our free report on Maruti Suzuki India will help you uncover what's on the horizon.

How Is Maruti Suzuki India's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 19% last year. The strong recent performance means it was also able to grow EPS by 221% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 9.2% per year over the next three years. That's shaping up to be materially lower than the 20% per annum growth forecast for the broader market.

With this information, we can see why Maruti Suzuki India is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Maruti Suzuki India's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Maruti Suzuki India you should be aware of.

Of course, you might also be able to find a better stock than Maruti Suzuki India. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.