There's No Escaping General Insurance Corporation of India's (NSE:GICRE) Muted Earnings Despite A 30% Share Price Rise

General Insurance Corporation of India (NSE:GICRE) shares have continued their recent momentum with a 30% gain in the last month alone. The last month tops off a massive increase of 149% in the last year.

In spite of the firm bounce in price, General Insurance Corporation of India's price-to-earnings (or "P/E") ratio of 10.8x might still 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 60x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

General Insurance Corporation of India 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for General Insurance Corporation of India

Keen to find out how analysts think General Insurance Corporation of India'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?

General Insurance Corporation of India's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Retrospectively, the last year delivered an exceptional 32% gain to the company's bottom line. The latest three year period has also seen an excellent 121,600% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to slump, contracting by 5.9% each year during the coming three years according to the three analysts following the company. Meanwhile, the broader market is forecast to expand by 19% each year, which paints a poor picture.

With this information, we are not surprised that General Insurance Corporation of India is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On General Insurance Corporation of India's P/E

General Insurance Corporation of India's recent share price jump still sees its P/E sitting firmly flat on the ground. 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 General Insurance Corporation of India's analyst forecasts revealed that its outlook for shrinking earnings 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 3 warning signs for General Insurance Corporation of India (1 is significant!) that we have uncovered.

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

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.