Earnings Not Telling The Story For Mphasis Limited (NSE:MPHASIS)

There wouldn't be many who think Mphasis Limited's (NSE:MPHASIS) price-to-earnings (or "P/E") ratio of 28.3x is worth a mention when the median P/E in India is similar at about 27x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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Recent earnings growth for Mphasis has been in line with the market. It seems that many are expecting the mediocre earnings performance to persist, which has held the P/E back. 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.

See our latest analysis for Mphasis

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

Is There Some Growth For Mphasis?

The only time you'd be comfortable seeing a P/E like Mphasis' is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 11% last year. EPS has also lifted 12% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 13% per annum as estimated by the analysts watching the company. With the market predicted to deliver 20% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's curious that Mphasis' P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Mphasis currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

It is also worth noting that we have found 1 warning sign for Mphasis that you need to take into consideration.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.