Insufficient Growth At PNB Housing Finance Limited (NSE:PNBHOUSING) Hampers Share Price

When close to half the companies in India have price-to-earnings ratios (or “P/E’s”) above 30x, you may consider PNB Housing Finance Limited (NSE:PNBHOUSING) as an attractive investment with its 16.3x P/E ratio. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

There hasn’t been much to differentiate PNB Housing Finance’s and the market’s earnings growth lately. It might be that many expect the mediocre earnings performance to degrade, which has repressed the P/E. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

Check out our latest analysis for PNB Housing Finance

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NSEI:PNBHOUSING Price to Earnings Ratio vs Industry December 18th 2023

Want the full picture on analyst estimates for the company? Then our free report on PNB Housing Finance will help you uncover what’s on the horizon.

Is There Any Growth For PNB Housing Finance?

PNB Housing Finance’s P/E ratio would be typical for a company that’s only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered an exceptional 18% gain to the company’s bottom line. Pleasingly, EPS has also lifted 46% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 11% per annum over the next three years. That’s shaping up to be materially lower than the 19% per annum growth forecast for the broader market.

In light of this, it’s understandable that PNB Housing Finance’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.

The Bottom Line On PNB Housing Finance’s P/E

While the price-to-earnings ratio shouldn’t be the defining factor in whether you buy a stock or not, it’s quite a capable barometer of earnings expectations.

As we suspected, our examination of PNB Housing Finance’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.

You always need to take note of risks, for example – PNB Housing Finance has 4 warning signs we think you should be aware of.

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 low P/E.

Valuation is complex, but we’re helping make it simple.

Find out whether PNB Housing Finance is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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.

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