Improved Earnings Required Before ACC Limited (NSE:ACC) Shares Find Their Feet

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 30x, you may consider ACC Limited (NSE:ACC) as an attractive investment with its 15.2x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's inferior to most other companies of late, ACC 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 ACC

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

Does Growth Match The Low P/E?

ACC's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered a decent 2.9% gain to the company's bottom line. Pleasingly, EPS has also lifted 42% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 2.7% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to expand by 22% per annum, which is noticeably more attractive.

In light of this, it's understandable that ACC's 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.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that ACC maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for ACC that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.