Many Still Looking Away From Fusion Micro Finance Limited (NSE:FUSION)

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 28x, you may consider Fusion Micro Finance Limited (NSE:FUSION) as an attractive investment with its 14.4x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Fusion Micro Finance has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Fusion Micro Finance

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

How Is Fusion Micro Finance's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 311% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 312% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 18% per annum over the next three years. Meanwhile, the rest of the market is forecast to expand by 19% per annum, which is not materially different.

In light of this, it's peculiar that Fusion Micro Finance's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Fusion Micro Finance currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Fusion Micro Finance (including 1 which is a bit concerning).

Of course, you might also be able to find a better stock than Fusion Micro Finance. 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.