There's No Escaping AGI Greenpac Limited's (NSE:AGI) Muted Earnings

With a price-to-earnings (or "P/E") ratio of 19.3x AGI Greenpac Limited (NSE:AGI) may be sending bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 31x and even P/E's higher than 60x are not unusual. 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 superior to most other companies of late, AGI Greenpac has been doing relatively well. 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.

View our latest analysis for AGI Greenpac

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Is There Any Growth For AGI Greenpac?

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

If we review the last year of earnings growth, the company posted a terrific increase of 47%. The latest three year period has also seen an excellent 687% overall rise in EPS, aided by its short-term performance. 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 year should generate growth of 15% as estimated by the lone analyst watching the company. With the market predicted to deliver 25% growth , the company is positioned for a weaker earnings result.

In light of this, it's understandable that AGI Greenpac'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.

What We Can Learn From AGI Greenpac'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.

As we suspected, our examination of AGI Greenpac's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. 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 1 warning sign for AGI Greenpac that we have uncovered.

If you're unsure about the strength of AGI Greenpac'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.