Lacklustre Performance Is Driving Hindustan Zinc Limited's (NSE:HINDZINC) Low P/E

With a price-to-earnings (or "P/E") ratio of 22x Hindustan Zinc Limited (NSE:HINDZINC) may be sending bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 33x and even P/E's higher than 62x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Hindustan Zinc could be doing better as it's been growing earnings less than most other companies lately. 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 Hindustan Zinc

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

How Is Hindustan Zinc's Growth Trending?

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

Retrospectively, the last year delivered a decent 3.6% gain to the company's bottom line. Still, EPS has barely risen at all in aggregate from three years ago, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the twelve analysts covering the company suggest earnings should grow by 12% per year over the next three years. With the market predicted to deliver 19% growth each year, the company is positioned for a weaker earnings result.

With this information, we can see why Hindustan Zinc 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

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.

We've established that Hindustan Zinc 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.

Having said that, be aware Hindustan Zinc is showing 2 warning signs in our investment analysis, and 1 of those is significant.

If these risks are making you reconsider your opinion on Hindustan Zinc, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.