Earnings Tell The Story For Lloyds Enterprises Limited (NSE:LLOYDSENT)

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 32x, you may consider Lloyds Enterprises Limited (NSE:LLOYDSENT) as a stock to avoid entirely with its 53.4x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Lloyds Enterprises certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Lloyds Enterprises

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Lloyds Enterprises' earnings, revenue and cash flow.

Does Growth Match The High P/E?

Lloyds Enterprises' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 141%. The strong recent performance means it was also able to grow EPS by 11,996% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 26% shows it's noticeably more attractive on an annualised basis.

With this information, we can see why Lloyds Enterprises is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

What We Can Learn From Lloyds Enterprises' P/E?

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 Lloyds Enterprises maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for Lloyds Enterprises that we have uncovered.

You might be able to find a better investment than Lloyds Enterprises. 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.