Insufficient Growth At LIC Housing Finance Limited (NSE:LICHSGFIN) Hampers Share Price

With a price-to-earnings (or "P/E") ratio of 7.7x LIC Housing Finance Limited (NSE:LICHSGFIN) may be sending very bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 35x and even P/E's higher than 66x 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 so limited.

With earnings growth that's superior to most other companies of late, LIC Housing Finance has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for LIC Housing Finance

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

How Is LIC Housing Finance's Growth Trending?

LIC Housing Finance's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Retrospectively, the last year delivered an exceptional 45% gain to the company's bottom line. Pleasingly, EPS has also lifted 111% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 4.7% each year over the next three years. With the market predicted to deliver 21% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that LIC Housing Finance's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On LIC Housing Finance's 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.

We've established that LIC Housing Finance maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

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

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.