Why Investors Shouldn't Be Surprised By Bharti Hexacom Limited's (NSE:BHARTIHEXA) P/E
When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 25x, you may consider Bharti Hexacom Limited (NSE:BHARTIHEXA) as a stock to avoid entirely with its 57.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.
Recent times have been advantageous for Bharti Hexacom as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
View our latest analysis for Bharti Hexacom
How Is Bharti Hexacom's Growth Trending?
In order to justify its P/E ratio, Bharti Hexacom would need to produce outstanding growth well in excess of the market.
Retrospectively, the last year delivered an exceptional 28% gain to the company's bottom line. Still, incredibly EPS has fallen 21% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Turning to the outlook, the next three years should generate growth of 32% per year as estimated by the analysts watching the company. With the market only predicted to deliver 20% per annum, the company is positioned for a stronger earnings result.
In light of this, it's understandable that Bharti Hexacom's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
What We Can Learn From Bharti Hexacom'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.
We've established that Bharti Hexacom maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
We don't want to rain on the parade too much, but we did also find 1 warning sign for Bharti Hexacom that you need to be mindful of.
If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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