Potential Upside For PDS Limited (NSE:PDSL) Not Without Risk

There wouldn't be many who think PDS Limited's (NSE:PDSL) price-to-earnings (or "P/E") ratio of 31.7x 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.

PDS could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for PDS

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

Is There Some Growth For PDS?

In order to justify its P/E ratio, PDS would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a frustrating 21% decrease to the company's bottom line. Even so, admirably EPS has lifted 1,079% 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 year should generate growth of 86% as estimated by the sole analyst watching the company. With the market only predicted to deliver 26%, the company is positioned for a stronger earnings result.

In light of this, it's curious that PDS' P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On PDS' P/E

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 PDS' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Before you settle on your opinion, we've discovered 1 warning sign for PDS that you should be aware of.

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