Tourism Finance Corporation of India Limited (NSE:TFCILTD) Stock Catapults 26% Though Its Price And Business Still Lag The Market

Tourism Finance Corporation of India Limited (NSE:TFCILTD) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 2.2% isn't as attractive.

Even after such a large jump in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 26x, you may still consider Tourism Finance Corporation of India as an attractive investment with its 17.3x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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As an illustration, earnings have deteriorated at Tourism Finance Corporation of India over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, 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.

See our latest analysis for Tourism Finance Corporation of India

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Tourism Finance Corporation of India's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Tourism Finance Corporation of India would need to produce sluggish growth that's trailing the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 3.3%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 25% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Tourism Finance Corporation of India's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Final Word

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. 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 Tourism Finance Corporation of India maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, 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 the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Tourism Finance Corporation of India (1 is a bit unpleasant!) that you should be aware of before investing here.

If you're unsure about the strength of Tourism Finance Corporation of India's 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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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.