Earnings Not Telling The Story For ICICI Prudential Life Insurance Company Limited (NSE:ICICIPRULI)

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 29x, you may consider ICICI Prudential Life Insurance Company Limited (NSE:ICICIPRULI) as a stock to avoid entirely with its 79x 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.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

ICICI Prudential Life Insurance certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for ICICI Prudential Life Insurance

If you'd like to see what analysts are forecasting going forward, you should check out our free report on ICICI Prudential Life Insurance.

How Is ICICI Prudential Life Insurance's Growth Trending?

In order to justify its P/E ratio, ICICI Prudential Life Insurance would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 39% last year. Pleasingly, EPS has also lifted 55% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 13% each year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 22% per annum growth forecast for the broader market.

In light of this, it's alarming that ICICI Prudential Life Insurance's P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

What We Can Learn From ICICI Prudential Life Insurance's 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.

Our examination of ICICI Prudential Life Insurance's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You always need to take note of risks, for example - ICICI Prudential Life Insurance has 1 warning sign we think you should be aware of.

You might be able to find a better investment than ICICI Prudential Life Insurance. 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).

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.