Investors Aren't Entirely Convinced By MOIL Limited's (NSE:MOIL) Earnings

With a price-to-earnings (or "P/E") ratio of 19.5x MOIL Limited (NSE:MOIL) may be sending bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 32x and even P/E's higher than 61x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

MOIL certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for MOIL

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

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, MOIL would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 29% gain to the company's bottom line. Pleasingly, EPS has also lifted 40% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 23% per year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 19% per year, which is noticeably less attractive.

In light of this, it's peculiar that MOIL's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

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.

Our examination of MOIL's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Plus, you should also learn about this 1 warning sign we've spotted with MOIL.

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.