Go Digit General Insurance Limited's (NSE:GODIGIT) Popularity With Investors Is Clear

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 29x, you may consider Go Digit General Insurance Limited (NSE:GODIGIT) as a stock to avoid entirely with its 78.1x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's superior to most other companies of late, Go Digit General Insurance has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Go Digit General Insurance

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Go Digit General Insurance.

Is There Enough Growth For Go Digit General Insurance?

In order to justify its P/E ratio, Go Digit General Insurance would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 124%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to climb by 29% per annum during the coming three years according to the ten analysts following the company. With the market only predicted to deliver 22% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why Go Digit General Insurance is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Go Digit General Insurance's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Go Digit General Insurance's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Go Digit General Insurance with six simple checks.

If you're unsure about the strength of Go Digit General Insurance's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.