Earnings Not Telling The Story For RateGain Travel Technologies Limited (NSE:RATEGAIN)

With a price-to-earnings (or "P/E") ratio of 37.5x RateGain Travel Technologies Limited (NSE:RATEGAIN) may be sending bearish signals at the moment, given that almost half of all companies in India have P/E ratios under 25x and even P/E's lower than 14x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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With earnings growth that's inferior to most other companies of late, RateGain Travel Technologies has been relatively sluggish. One possibility is that the P/E is high because investors think this lacklustre earnings performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for RateGain Travel Technologies

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

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as high as RateGain Travel Technologies' is when the company's growth is on track to outshine the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 10.0% last year. This was backed up an excellent period prior to see EPS up by 466% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 21% each year over the next three years. With the market predicted to deliver 20% growth each year, the company is positioned for a comparable earnings result.

In light of this, it's curious that RateGain Travel Technologies' P/E sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Bottom Line On RateGain Travel Technologies' P/E

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that RateGain Travel Technologies currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for RateGain Travel Technologies with six simple checks on some of these key factors.

You might be able to find a better investment than RateGain Travel Technologies. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.