Adani Ports and Special Economic Zone Limited's (NSE:ADANIPORTS) Business And Shares Still Trailing The Market

Adani Ports and Special Economic Zone Limited's (NSE:ADANIPORTS) price-to-earnings (or "P/E") ratio of 24.1x might make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 31x and even P/E's above 58x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Adani Ports and Special Economic Zone as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Adani Ports and Special Economic Zone

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

How Is Adani Ports and Special Economic Zone's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 53% last year. The latest three year period has also seen an excellent 81% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 13% per year over the next three years. With the market predicted to deliver 19% growth per annum, the company is positioned for a weaker earnings result.

With this information, we can see why Adani Ports and Special Economic Zone is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

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 Adani Ports and Special Economic Zone maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Adani Ports and Special Economic Zone that you should be aware of.

Of course, you might also be able to find a better stock than Adani Ports and Special Economic Zone. 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.