Investor Optimism Abounds AGI Infra Limited (NSE:AGIIL) But Growth Is Lacking

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 27x, you may consider AGI Infra Limited (NSE:AGIIL) as a stock to potentially avoid with its 33.9x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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Earnings have risen at a steady rate over the last year for AGI Infra, which is generally not a bad outcome. It might be that many expect the reasonable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for AGI Infra

Although there are no analyst estimates available for AGI Infra, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Growth For AGI Infra?

In order to justify its P/E ratio, AGI Infra would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a decent 7.5% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 97% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

It's interesting to note that the rest of the market is similarly expected to grow by 24% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we find it interesting that AGI Infra is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Nevertheless, they may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

What We Can Learn From AGI Infra's P/E?

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 AGI Infra currently trades on a higher than expected P/E since its recent three-year growth is only in line with the wider market forecast. Right now we are uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You always need to take note of risks, for example - AGI Infra has 1 warning sign we think you should be aware of.

Of course, you might also be able to find a better stock than AGI Infra. 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.