ICICI Securities Limited's (NSE:ISEC) Price Is Right But Growth Is Lacking

ICICI Securities Limited's (NSE:ISEC) price-to-earnings (or "P/E") ratio of 14.9x might make it look like a strong buy right now compared to the market in India, where around half of the companies have P/E ratios above 34x and even P/E's above 66x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Recent times have been advantageous for ICICI Securities as its earnings have been rising faster 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.

Check out our latest analysis for ICICI Securities

Want the full picture on analyst estimates for the company? Then our free report on ICICI Securities will help you uncover what's on the horizon.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, ICICI Securities would need to produce anemic growth that's substantially trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 52% last year. The strong recent performance means it was also able to grow EPS by 58% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 24% as estimated by the four analysts watching the company. That's not great when the rest of the market is expected to grow by 25%.

In light of this, it's understandable that ICICI Securities' P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From ICICI Securities' P/E?

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.

As we suspected, our examination of ICICI Securities' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

You need to take note of risks, for example - ICICI Securities has 3 warning signs (and 2 which are significant) we think you should know about.

Of course, you might also be able to find a better stock than ICICI Securities. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com