The Market Doesn't Like What It Sees From UTI Asset Management Company Limited's (NSE:UTIAMC) Earnings Yet

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 33x, you may consider UTI Asset Management Company Limited (NSE:UTIAMC) as an attractive investment with its 18.4x 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.

UTI Asset Management certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong 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.

View our latest analysis for UTI Asset Management

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

What Are Growth Metrics Telling Us About The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as UTI Asset Management's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 59%. Pleasingly, EPS has also lifted 33% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 2.6% per annum as estimated by the eleven analysts watching the company. That's shaping up to be materially lower than the 20% each year growth forecast for the broader market.

With this information, we can see why UTI Asset Management is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From UTI Asset Management's P/E?

We'd say 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 UTI Asset Management maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for UTI Asset Management with six simple checks.

If you're unsure about the strength of UTI Asset Management'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.