Pinning Down Sri Havisha Hospitality and Infrastructure Limited's (NSE:HAVISHA) P/E Is Difficult Right Now

There wouldn't be many who think Sri Havisha Hospitality and Infrastructure Limited's (NSE:HAVISHA) price-to-earnings (or "P/E") ratio of 22.9x is worth a mention when the median P/E in India is similar at about 21x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

For example, consider that Sri Havisha Hospitality and Infrastructure's financial performance has been poor lately as it's earnings have been in decline. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for Sri Havisha Hospitality and Infrastructure

Although there are no analyst estimates available for Sri Havisha Hospitality and Infrastructure, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Growth For Sri Havisha Hospitality and Infrastructure?

There's an inherent assumption that a company should be matching the market for P/E ratios like Sri Havisha Hospitality and Infrastructure's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 38%. This means it has also seen a slide in earnings over the longer-term as EPS is down 56% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

In contrast to the company, the rest of the market is expected to grow by 25% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Sri Havisha Hospitality and Infrastructure is trading at a fairly similar P/E to the market. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh on the share price eventually.

The Final Word

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.

We've established that Sri Havisha Hospitality and Infrastructure currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the moderate P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Sri Havisha Hospitality and Infrastructure is showing 4 warning signs in our investment analysis, and 2 of those can't be ignored.

If these risks are making you reconsider your opinion on Sri Havisha Hospitality and Infrastructure, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.