Investors Continue Waiting On Sidelines For MOIL Limited (NSE:MOIL)

MOIL Limited's (NSE:MOIL) price-to-earnings (or "P/E") ratio of 21.6x might make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 30x and even P/E's above 56x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

MOIL hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still 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.

Check out 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.

How Is MOIL's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as MOIL's is when the company's growth is on track to lag the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 26%. Still, the latest three year period has seen an excellent 310% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 36% per year over the next three years. That's shaping up to be materially higher than the 19% per year growth forecast for the broader market.

With this information, we find it odd that MOIL is trading at a P/E lower than the market. 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.

We've established that MOIL currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you take the next step, you should know about the 4 warning signs for MOIL (1 is significant!) that we have uncovered.

If you're unsure about the strength of MOIL'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.