Market Cool On Fusion Micro Finance Limited's (NSE:FUSION) Earnings

With a price-to-earnings (or "P/E") ratio of 10.3x Fusion Micro Finance Limited (NSE:FUSION) may be sending very bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 31x and even P/E's higher than 57x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Fusion Micro Finance certainly has been doing a good job lately as it's been growing earnings more than most other companies. 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.

View our latest analysis for Fusion Micro Finance

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Fusion Micro Finance.

Is There Any Growth For Fusion Micro Finance?

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

If we review the last year of earnings growth, the company posted a terrific increase of 45%. The latest three year period has also seen an excellent 771% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 26% during the coming year according to the eleven analysts following the company. That's shaping up to be similar to the 24% growth forecast for the broader market.

In light of this, it's peculiar that Fusion Micro Finance's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On Fusion Micro Finance's P/E

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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Fusion Micro Finance (of which 1 is concerning!) you should know about.

You might be able to find a better investment than Fusion Micro Finance. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.