Coromandel International Limited's (NSE:COROMANDEL) Business And Shares Still Trailing The Market

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 29x, you may consider Coromandel International Limited (NSE:COROMANDEL) as an attractive investment with its 15.6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Coromandel International could be doing better as it's been growing earnings less than most other companies lately. The P/E is probably low because investors think this lacklustre earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Coromandel International

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Coromandel International.

How Is Coromandel International's Growth Trending?

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

If we review the last year of earnings growth, the company posted a worthy increase of 5.7%. Pleasingly, EPS has also lifted 50% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 2.0% per annum as estimated by the ten analysts watching the company. That's shaping up to be materially lower than the 20% per year growth forecast for the broader market.

With this information, we can see why Coromandel International is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Coromandel International maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. 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 Coromandel International that you should be aware of.

You might be able to find a better investment than Coromandel International. 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).

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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.