There's No Escaping Welspun Enterprises Limited's (NSE:WELENT) Muted Earnings

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 34x, you may consider Welspun Enterprises Limited (NSE:WELENT) as an attractive investment with its 21.3x 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.

While the market has experienced earnings growth lately, Welspun Enterprises' earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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 Welspun Enterprises

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

Does Growth Match The Low P/E?

Welspun Enterprises' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 52%. Even so, admirably EPS has lifted 173% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should generate growth of 9.1% per annum as estimated by the only analyst watching the company. Meanwhile, the rest of the market is forecast to expand by 21% per year, which is noticeably more attractive.

In light of this, it's understandable that Welspun Enterprises' P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Welspun Enterprises' 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Welspun Enterprises, and understanding them should be part of your investment process.

You might be able to find a better investment than Welspun 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.