Improved Earnings Required Before NIIT Learning Systems Limited (NSE:NIITMTS) Shares Find Their Feet

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 33x, you may consider NIIT Learning Systems Limited (NSE:NIITMTS) as an attractive investment with its 28.8x 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.

NIIT Learning Systems could be doing better as it's been growing earnings less than most other companies lately. It seems that many are expecting the uninspiring earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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How Is NIIT Learning Systems' Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like NIIT Learning Systems' to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 4.7% last year. Still, EPS has barely risen at all in aggregate from three years ago, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 17% as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 25%, which is noticeably more attractive.

With this information, we can see why NIIT Learning Systems is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

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 NIIT Learning Systems maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for NIIT Learning Systems that you should be aware of.

If these risks are making you reconsider your opinion on NIIT Learning Systems, 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.