Investors Continue Waiting On Sidelines For Housing and Urban Development Corporation Limited (NSE:HUDCO)

With a price-to-earnings (or "P/E") ratio of 16.9x Housing and Urban Development Corporation Limited (NSE:HUDCO) may be sending bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 30x and even P/E's higher than 57x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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Housing and Urban Development 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 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

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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.

If we review the last year of earnings growth, the company posted a terrific increase of 28%. The latest three year period has also seen an excellent 58% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 25% over the next year. That's shaping up to be similar to the 23% growth forecast for the broader market.

In light of this, it's peculiar that Housing and Urban Development'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 Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Housing and Urban Development 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.

You need to take note of risks, for example - Housing and Urban Development has 3 warning signs (and 2 which make us uncomfortable) we think you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.