Why Investors Shouldn't Be Surprised By Dilip Buildcon Limited's (NSE:DBL) Low P/E

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 25x, you may consider Dilip Buildcon Limited (NSE:DBL) as an attractive investment with its 14.3x 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.

Dilip Buildcon certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Dilip Buildcon

Keen to find out how analysts think Dilip Buildcon's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Dilip Buildcon's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Dilip Buildcon's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 305% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 63% as estimated by the six analysts watching the company. With the market predicted to deliver 25% growth , that's a disappointing outcome.

With this information, we are not surprised that Dilip Buildcon is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Dilip Buildcon maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. 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.

Before you settle on your opinion, we've discovered 3 warning signs for Dilip Buildcon (2 are potentially serious!) 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.