Housing and Urban Development Corporation Limited's (NSE:HUDCO) Shares Not Telling The Full Story

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 28x, you may consider Housing and Urban Development Corporation Limited (NSE:HUDCO) as an attractive investment with its 16.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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With earnings growth that's superior to most other companies of late, Housing and Urban Development 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Housing and Urban Development

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Housing and Urban Development.

How Is Housing and Urban Development's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Housing and Urban Development's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 25% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 61% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 29% during the coming year according to the two analysts following the company. That's shaping up to be materially higher than the 25% growth forecast for the broader market.

With this information, we find it odd that Housing and Urban Development is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Housing and Urban Development currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you take the next step, you should know about the 2 warning signs for Housing and Urban Development (1 makes us a bit uncomfortable!) that we have uncovered.

If you're unsure about the strength of Housing and Urban Development's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.