There's No Escaping LIC Housing Finance Limited's (NSE:LICHSGFIN) Muted Earnings

With a price-to-earnings (or "P/E") ratio of 6.4x 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 32x and even P/E's higher than 60x 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 inferior to most other companies of late, LIC Housing Finance has been relatively sluggish. It seems that many are expecting the uninspiring earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for LIC Housing Finance

Keen to find out how analysts think LIC Housing Finance's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For LIC Housing Finance?

The only time you'd be truly comfortable seeing a P/E as depressed as LIC Housing Finance's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered an exceptional 17% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 206% 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 4.5% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to expand by 20% each year, which is noticeably more attractive.

With this information, we can see why LIC Housing Finance is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of LIC Housing Finance's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You need to take note of risks, for example - LIC Housing Finance has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

You might be able to find a better investment than LIC Housing Finance. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.