Subdued Growth No Barrier To Info Edge (India) Limited's (NSE:NAUKRI) Price

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 25x, you may consider Info Edge (India) Limited (NSE:NAUKRI) as a stock to avoid entirely with its 67.7x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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Info Edge (India) certainly has been doing a good job lately as it's been growing earnings more 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 Info Edge (India)

Want the full picture on analyst estimates for the company? Then our free report on Info Edge (India) will help you uncover what's on the horizon.

How Is Info Edge (India)'s Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Info Edge (India)'s to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 181%. Still, incredibly EPS has fallen 76% 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.

Looking ahead now, EPS is anticipated to climb by 8.6% per annum during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to expand by 20% per year, which is noticeably more attractive.

In light of this, it's alarming that Info Edge (India)'s P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Info Edge (India)'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.

Our examination of Info Edge (India)'s analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You need to take note of risks, for example - Info Edge (India) has 3 warning signs (and 1 which is potentially serious) we think you should know about.

If you're unsure about the strength of Info Edge (India)'s business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.