Investors Aren't Buying Ircon International Limited's (NSE:IRCON) Earnings

Ircon International Limited's (NSE:IRCON) price-to-earnings (or "P/E") ratio of 21x might make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 34x and even P/E's above 64x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times haven't been advantageous for Ircon International as its earnings have been rising slower than most other companies. The P/E is probably low because investors think this lacklustre earnings performance isn't going to get any better. 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 Ircon International

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

What Are Growth Metrics Telling Us About The Low P/E?

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

Retrospectively, the last year delivered a decent 4.1% gain to the company's bottom line. Pleasingly, EPS has also lifted 89% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 6.6% per annum as estimated by the three analysts watching the company. That's shaping up to be materially lower than the 19% per year growth forecast for the broader market.

With this information, we can see why Ircon International is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Ircon International'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.

As we suspected, our examination of Ircon International'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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Ircon International (1 makes us a bit uncomfortable) you should be aware of.

You might be able to find a better investment than Ircon International. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.