When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 12x, you may consider PNB Gilts Ltd. (NSE:PNBGILTS) as a highly attractive investment with its 3.6x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.
With earnings growth that's exceedingly strong of late, PNB Gilts has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
View our latest analysis for PNB Gilts
Is There Any Growth For PNB Gilts?
In order to justify its P/E ratio, PNB Gilts would need to produce anemic growth that's substantially trailing the market.
If we review the last year of earnings growth, the company posted a terrific increase of 246%. As a result, it also grew EPS by 11% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.
In contrast to the company, the rest of the market is expected to decline by 2.8% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.
With this information, we find it very odd that PNB Gilts is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can maintain its recent positive growth rate in the face of a shrinking broader market.
The Bottom Line On PNB Gilts' 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.
Our examination of PNB Gilts revealed its growing earnings over the medium-term aren't contributing to its P/E anywhere near as much as we would have predicted, given the market is set to shrink. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. Perhaps there is some hesitation about the company's ability to stay its recent course and swim against the current of the broader market turmoil. It appears many are indeed anticipating earnings instability, because this relative performance should normally provide a boost to the share price.
Having said that, be aware PNB Gilts is showing 5 warning signs in our investment analysis, and 2 of those shouldn't be ignored.
If these risks are making you reconsider your opinion on PNB Gilts, explore our interactive list of high quality stocks to get an idea of what else is out there.
When trading PNB Gilts or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account.Promoted
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.
About NSEI:PNBGILTS
Proven track record average dividend payer.
