Why Investors Shouldn't Be Surprised By Petronet LNG Limited's (NSE:PETRONET) Low P/E

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 26x, you may consider Petronet LNG Limited (NSE:PETRONET) as a highly attractive investment with its 11.7x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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Petronet LNG could be doing better as it's been growing earnings less than most other companies lately. It seems that many are expecting the uninspiring earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Petronet LNG

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

Is There Any Growth For Petronet LNG?

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

Retrospectively, the last year delivered a decent 3.9% gain to the company's bottom line. EPS has also lifted 11% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 10% during the coming year according to the analysts following the company. That's shaping up to be materially lower than the 25% growth forecast for the broader market.

With this information, we can see why Petronet LNG 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.

The Final Word

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.

We've established that Petronet LNG 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.

You always need to take note of risks, for example - Petronet LNG has 1 warning sign we think you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.