Improved Earnings Required Before Tourism Finance Corporation of India Limited (NSE:TFCILTD) Stock's 28% Jump Looks Justified

Tourism Finance Corporation of India Limited (NSE:TFCILTD) shares have continued their recent momentum with a 28% gain in the last month alone. The annual gain comes to 276% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, Tourism Finance Corporation of India's price-to-earnings (or "P/E") ratio of 24.1x might still make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 32x and even P/E's above 59x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Tourism Finance Corporation of India has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. 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 Tourism Finance Corporation of India

Although there are no analyst estimates available for Tourism Finance Corporation of India, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Tourism Finance Corporation of India's Growth Trending?

Tourism Finance Corporation of India's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a worthy increase of 12%. The latest three year period has also seen a 14% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 24% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Tourism Finance Corporation of India is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

Tourism Finance Corporation of India's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Tourism Finance Corporation of India revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Tourism Finance Corporation of India (of which 2 are a bit concerning!) you should know about.

Of course, you might also be able to find a better stock than Tourism Finance Corporation of India. 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.