Improved Earnings Required Before The Great Eastern Shipping Company Limited (NSE:GESHIP) Shares Find Their Feet

The Great Eastern Shipping Company Limited's (NSE:GESHIP) price-to-earnings (or "P/E") ratio of 6.4x might make it look like a strong 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 61x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Recent times haven't been advantageous for Great Eastern Shipping as its earnings have been rising slower than most other companies. The P/E is probably low because investors think this lacklustre earnings performance isn't going to get any better. If you still like the company, you'd be hoping earnings don't get any worse and that you could pick up some stock while it's out of favour.

See our latest analysis for Great Eastern Shipping

Want the full picture on analyst estimates for the company? Then our free report on Great Eastern Shipping will help you uncover what's on the horizon.

How Is Great Eastern Shipping's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Great Eastern Shipping's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered a decent 5.8% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 534% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 3.5% per annum during the coming three years according to the lone analyst following the company. With the market predicted to deliver 19% growth per year, that's a disappointing outcome.

With this information, we are not surprised that Great Eastern Shipping is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Great Eastern Shipping maintains its low P/E on the weakness of its forecast for sliding earnings, 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.

Plus, you should also learn about these 3 warning signs we've spotted with Great Eastern Shipping (including 1 which is a bit concerning).

If these risks are making you reconsider your opinion on Great Eastern Shipping, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.