Indian Renewable Energy Development Agency Limited (NSE:IREDA) Screens Well But There Might Be A Catch

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 28x, you may consider Indian Renewable Energy Development Agency Limited (NSE:IREDA) as an attractive investment with its 24.7x P/E ratio. 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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Earnings have risen firmly for Indian Renewable Energy Development Agency recently, which is pleasing to see. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

View our latest analysis for Indian Renewable Energy Development Agency

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Indian Renewable Energy Development Agency's earnings, revenue and cash flow.

How Is Indian Renewable Energy Development Agency's Growth Trending?

Indian Renewable Energy Development Agency's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 15% last year. The strong recent performance means it was also able to grow EPS by 88% 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.

It's interesting to note that the rest of the market is similarly expected to grow by 24% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Indian Renewable Energy Development Agency's P/E sits below the majority of other companies. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Indian Renewable Energy Development Agency revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look similar to current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Indian Renewable Energy Development Agency, and understanding them should be part of your investment process.

Of course, you might also be able to find a better stock than Indian Renewable Energy Development Agency. 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.