Shareholders Should Be Pleased With Mahindra Lifespace Developers Limited's (NSE:MAHLIFE) Price

Mahindra Lifespace Developers Limited's (NSE:MAHLIFE) price-to-earnings (or "P/E") ratio of 77.4x might make it look like a strong sell right now compared to the market in India, where around half of the companies have P/E ratios below 34x and even P/E's below 20x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Mahindra Lifespace Developers certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Mahindra Lifespace Developers

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

Is There Enough Growth For Mahindra Lifespace Developers?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Mahindra Lifespace Developers' to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 427% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to climb by 36% each year during the coming three years according to the seven analysts following the company. That's shaping up to be materially higher than the 21% per year growth forecast for the broader market.

In light of this, it's understandable that Mahindra Lifespace Developers' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Mahindra Lifespace Developers' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Mahindra Lifespace Developers.

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.