Benign Growth For Indraprastha Gas Limited (NSE:IGL) Underpins Stock's 26% Plummet

Indraprastha Gas Limited (NSE:IGL) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. Indeed, the recent drop has reduced its annual gain to a relatively sedate 5.0% over the last twelve months.

Although its price has dipped substantially, Indraprastha Gas' price-to-earnings (or "P/E") ratio of 14.6x might still make it look like a strong buy right now compared to the market in India, where around half of the companies have P/E ratios above 32x and even P/E's above 60x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Indraprastha Gas could be doing better as it's been growing earnings less than most other companies lately. 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 Indraprastha Gas

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

How Is Indraprastha Gas' Growth Trending?

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

Retrospectively, the last year delivered an exceptional 16% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 37% in total over the last three years. 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 1.9% per year as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 20% each year, which is noticeably more attractive.

In light of this, it's understandable that Indraprastha Gas' 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 Indraprastha Gas' P/E?

Indraprastha Gas' P/E looks about as weak as its stock price lately. 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.

As we suspected, our examination of Indraprastha Gas' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for Indraprastha Gas that you need to take into consideration.

If these risks are making you reconsider your opinion on Indraprastha Gas, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.