Earnings Not Telling The Story For Ritco Logistics Limited (NSE:RITCO)

It's not a stretch to say that Ritco Logistics Limited's (NSE:RITCO) price-to-earnings (or "P/E") ratio of 21.5x right now seems quite "middle-of-the-road" compared to the market in India, where the median P/E ratio is around 20x. 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.

With earnings growth that's exceedingly strong of late, Ritco Logistics has been doing very well. 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.

View our latest analysis for Ritco Logistics

Although there are no analyst estimates available for Ritco Logistics, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Ritco Logistics' Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 161%. The latest three year period has also seen a 11% overall rise in EPS, aided extensively by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

This is in contrast to the rest of the market, which is expected to grow by 21% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Ritco Logistics' P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Key Takeaway

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 Ritco Logistics currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Ritco Logistics (1 is a bit concerning) you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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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.