MAS Financial Services Limited (NSE:MASFIN) Not Flying Under The Radar

With a price-to-earnings (or "P/E") ratio of 27x MAS Financial Services Limited (NSE:MASFIN) may be sending very bearish signals at the moment, given that almost half of all companies in India have P/E ratios under 16x and even P/E's lower than 8x 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 lofty.

MAS Financial Services has been doing a decent job lately as it's been growing earnings at a reasonable pace. One possibility is that the P/E is high because investors think this good earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for MAS Financial Services

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on MAS Financial Services will help you shine a light on its historical performance.

How Is MAS Financial Services' Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like MAS Financial Services' to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 6.3% last year. The latest three year period has also seen an excellent 85% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 10% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's understandable that MAS Financial Services' P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On MAS Financial Services' P/E

The price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that MAS Financial Services maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for MAS Financial Services (1 is concerning) you should be aware of.

If you're unsure about the strength of MAS Financial Services' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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