Little Excitement Around Likhitha Infrastructure Limited's (NSE:LIKHITHA) Earnings

With a price-to-earnings (or "P/E") ratio of 23.1x Likhitha Infrastructure Limited (NSE:LIKHITHA) may be sending bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 33x and even P/E's higher than 63x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Likhitha Infrastructure 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 Likhitha Infrastructure

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Likhitha Infrastructure will help you shine a light on its historical performance.

How Is Likhitha Infrastructure's Growth Trending?

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

Retrospectively, the last year delivered a decent 9.7% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 79% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 26% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Likhitha Infrastructure's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From Likhitha Infrastructure's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Likhitha Infrastructure revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware Likhitha Infrastructure is showing 2 warning signs in our investment analysis, and 1 of those can't be ignored.

You might be able to find a better investment than Likhitha Infrastructure. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.