IndiaMART InterMESH Limited's (NSE:INDIAMART) Business Is Trailing The Market But Its Shares Aren't

There wouldn't be many who think IndiaMART InterMESH Limited's (NSE:INDIAMART) price-to-earnings (or "P/E") ratio of 29x is worth a mention when the median P/E in India is similar at about 29x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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With earnings growth that's superior to most other companies of late, IndiaMART InterMESH has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for IndiaMART InterMESH

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

Is There Some Growth For IndiaMART InterMESH?

IndiaMART InterMESH's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered an exceptional 66% gain to the company's bottom line. The latest three year period has also seen an excellent 88% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 5.8% per year during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 22% per annum growth forecast for the broader market.

In light of this, it's curious that IndiaMART InterMESH's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Final Word

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 IndiaMART InterMESH's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

You always need to take note of risks, for example - IndiaMART InterMESH has 2 warning signs we think you should be aware of.

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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.