Benign Growth For Allcargo Logistics Limited (NSE:ALLCARGO) Underpins Its Share Price

With a price-to-earnings (or "P/E") ratio of 11.2x Allcargo Logistics Limited (NSE:ALLCARGO) may be sending bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 15x and even P/E's higher than 37x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

The recently shrinking earnings for Allcargo Logistics have been in line with the market. It might be that many expect the company's earnings performance to degrade further, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. At the very least, you'd be hoping that earnings don't fall off a cliff if your plan is to pick up some stock while it's out of favour.

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How Is Allcargo Logistics' Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Allcargo Logistics' to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 7.8%. This means it has also seen a slide in earnings over the longer-term as EPS is down 1.8% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 10% during the coming year according to the five analysts following the company. With the market predicted to deliver 9.5% growth , that's a disappointing outcome.

With this information, we are not surprised that Allcargo Logistics is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

What We Can Learn From Allcargo Logistics' P/E?

The price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Allcargo Logistics maintains its low P/E on the weakness of its forecast for sliding earnings, 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.

Before you take the next step, you should know about the 4 warning signs for Allcargo Logistics (2 are concerning!) that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.

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