Getting In Cheap On Triveni Turbine Limited (NSE:TRITURBINE) Is Unlikely

With a price-to-earnings (or "P/E") ratio of 54.1x Triveni Turbine Limited (NSE:TRITURBINE) may be sending very bearish signals at the moment, given that almost half of all companies in India have P/E ratios under 29x and even P/E's lower than 16x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's superior to most other companies of late, Triveni Turbine has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Triveni Turbine

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

How Is Triveni Turbine's Growth Trending?

In order to justify its P/E ratio, Triveni Turbine would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 33% last year. Pleasingly, EPS has also lifted 34% in aggregate from three years ago, 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 13% each year as estimated by the nine analysts watching the company. With the market predicted to deliver 22% growth per year, the company is positioned for a weaker earnings result.

With this information, we find it concerning that Triveni Turbine is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Triveni Turbine's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 2 warning signs for Triveni Turbine (1 can't be ignored!) that you need to take into consideration.

Of course, you might also be able to find a better stock than Triveni Turbine. 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.