Investors Continue Waiting On Sidelines For Steel Authority of India Limited (NSE:SAIL)

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 34x, you may consider Steel Authority of India Limited (NSE:SAIL) as an attractive investment with its 17.4x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Steel Authority of India as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 Steel Authority of India

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

Is There Any Growth For Steel Authority of India?

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

Retrospectively, the last year delivered an exceptional 86% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 68% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 18% per annum as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 19% each year, which is not materially different.

In light of this, it's peculiar that Steel Authority of India's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Final Word

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.

We've established that Steel Authority of India currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

You need to take note of risks, for example - Steel Authority of India has 3 warning signs (and 1 which is significant) we think you should know about.

Of course, you might also be able to find a better stock than Steel Authority of India. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.