Gujarat Pipavav Port Limited's (NSE:GPPL) Shares Lagging The Market But So Is The Business

With a price-to-earnings (or "P/E") ratio of 22.7x Gujarat Pipavav Port Limited (NSE:GPPL) may be sending bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 33x and even P/E's higher than 63x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With earnings growth that's inferior to most other companies of late, Gujarat Pipavav Port has been relatively sluggish. It seems that many are expecting the uninspiring earnings performance to persist, which has repressed the P/E. If you still like the company, you'd be hoping earnings don't get any worse and that you could pick up some stock while it's out of favour.

See our latest analysis for Gujarat Pipavav Port

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Gujarat Pipavav Port.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Gujarat Pipavav Port's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a worthy increase of 7.5%. Pleasingly, EPS has also lifted 81% 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 superb for the company.

Turning to the outlook, the next three years should generate growth of 16% per year as estimated by the six analysts watching the company. That's shaping up to be materially lower than the 20% per annum growth forecast for the broader market.

In light of this, it's understandable that Gujarat Pipavav Port's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Gujarat Pipavav Port's P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Gujarat Pipavav Port's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with Gujarat Pipavav Port.

You might be able to find a better investment than Gujarat Pipavav Port. 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.