Improved Earnings Required Before Nesco Limited (NSE:NESCO) Shares Find Their Feet

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 30x, you may consider Nesco Limited (NSE:NESCO) as an attractive investment with its 20.5x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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Nesco could be doing better as it's been growing earnings less than most other companies lately. It seems that many are expecting the uninspiring earnings performance to persist, which has repressed the P/E. If you still like the company, you'd be hoping earnings don't get any worse and that you could pick up some stock while it's out of favour.

Check out our latest analysis for Nesco

Keen to find out how analysts think Nesco's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Nesco?

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

If we review the last year of earnings growth, the company posted a worthy increase of 3.4%. This was backed up an excellent period prior to see EPS up by 98% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 4.0% during the coming year according to the sole analyst following the company. Meanwhile, the rest of the market is forecast to expand by 23%, which is noticeably more attractive.

With this information, we can see why Nesco is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

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.

As we suspected, our examination of Nesco's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for Nesco (1 can't be ignored!) that we have uncovered.

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