Why We're Not Concerned About Oberoi Realty Limited's (NSE:OBEROIRLTY) Share Price

It's not a stretch to say that Oberoi Realty Limited's (NSE:OBEROIRLTY) price-to-earnings (or "P/E") ratio of 30x right now seems quite "middle-of-the-road" compared to the market in India, where the median P/E ratio is around 30x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Recent earnings growth for Oberoi Realty has been in line with the market. The P/E is probably moderate because investors think this modest earnings performance will continue. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

View our latest analysis for Oberoi Realty

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

Does Growth Match The P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 16% last year. The latest three year period has also seen an excellent 113% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 21% per year over the next three years. With the market predicted to deliver 22% growth per year, the company is positioned for a comparable earnings result.

In light of this, it's understandable that Oberoi Realty's P/E sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What We Can Learn From Oberoi 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 Oberoi Realty maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

Before you take the next step, you should know about the 1 warning sign for Oberoi Realty that we have uncovered.

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