Earnings Not Telling The Story For Adani Ports and Special Economic Zone Limited (NSE:ADANIPORTS)

With a median price-to-earnings (or "P/E") ratio of close to 26x in India, you could be forgiven for feeling indifferent about Adani Ports and Special Economic Zone Limited's (NSE:ADANIPORTS) P/E ratio of 24.7x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

We've discovered 2 warning signs about Adani Ports and Special Economic Zone. View them for free.

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 wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for Adani Ports and Special Economic Zone

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Adani Ports and Special Economic Zone.

Does Growth Match The P/E?

In order to justify its P/E ratio, Adani Ports and Special Economic Zone would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a terrific increase of 29%. The latest three year period has also seen an excellent 127% 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 14% per year over the next three years. That's shaping up to be materially lower than the 19% per annum growth forecast for the broader market.

With this information, we find it interesting that Adani Ports and Special Economic Zone is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

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.

Our examination of Adani Ports and Special Economic Zone's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. 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. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You should always think about risks. Case in point, we've spotted 2 warning signs for Adani Ports and Special Economic Zone 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.