There's No Escaping Gujarat Ambuja Exports Limited's (NSE:GAEL) Muted Earnings

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 32x, you may consider Gujarat Ambuja Exports Limited (NSE:GAEL) as an attractive investment with its 15.9x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's inferior to most other companies of late, Gujarat Ambuja Exports has been relatively sluggish. It seems that many are expecting the uninspiring earnings performance to persist, which has repressed the P/E. 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.

Check out our latest analysis for Gujarat Ambuja Exports

Want the full picture on analyst estimates for the company? Then our free report on Gujarat Ambuja Exports will help you uncover what's on the horizon.

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

There's an inherent assumption that a company should underperform the market for P/E ratios like Gujarat Ambuja Exports' to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 11%. Still, lamentably EPS has fallen 24% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 16% per year during the coming three years according to the sole analyst following the company. That's shaping up to be materially lower than the 20% each year growth forecast for the broader market.

In light of this, it's understandable that Gujarat Ambuja Exports' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Gujarat Ambuja Exports' P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Gujarat Ambuja Exports' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Gujarat Ambuja Exports that you should be aware of.

Of course, you might also be able to find a better stock than Gujarat Ambuja Exports. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.