Thomas Cook (India) Limited's (NSE:THOMASCOOK) P/E Is On The Mark

There wouldn't be many who think Thomas Cook (India) Limited's (NSE:THOMASCOOK) price-to-earnings (or "P/E") ratio of 32.4x is worth a mention when the median P/E in India is similar at about 33x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been advantageous for Thomas Cook (India) as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Thomas Cook (India)

Want the full picture on analyst estimates for the company? Then our free report on Thomas Cook (India) will help you uncover what's on the horizon.

How Is Thomas Cook (India)'s Growth Trending?

In order to justify its P/E ratio, Thomas Cook (India) would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 233% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 20% per year over the next three years. That's shaping up to be similar to the 20% each year growth forecast for the broader market.

In light of this, it's understandable that Thomas Cook (India)'s P/E sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

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 Thomas Cook (India) maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Thomas Cook (India) with six simple checks on some of these key factors.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.