Investors Aren't Entirely Convinced By Marathon Nextgen Realty Limited's (NSE:MARATHON) Earnings

With a price-to-earnings (or "P/E") ratio of 17.9x Marathon Nextgen Realty Limited (NSE:MARATHON) may be sending bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 33x and even P/E's higher than 62x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Earnings have risen at a steady rate over the last year for Marathon Nextgen Realty, which is generally not a bad outcome. One possibility is that the P/E is low because investors think this good earnings growth might actually underperform the broader market in the near future. 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.

Check out our latest analysis for Marathon Nextgen Realty

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

How Is Marathon Nextgen Realty's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Marathon Nextgen Realty's to be considered reasonable.

Retrospectively, the last year delivered a decent 3.8% gain to the company's bottom line. Pleasingly, EPS has also lifted 1,671% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 26% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Marathon Nextgen Realty's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Marathon Nextgen Realty's P/E

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.

We've established that Marathon Nextgen Realty currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Marathon Nextgen Realty (at least 1 which doesn't sit too well with us), and understanding them should be part of your investment process.

If you're unsure about the strength of Marathon Nextgen Realty'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.