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Gujarat Gas Limited (NSE:GUJGASLTD) is not lagging the market in terms of growth or prices

It’s not hard to say that Gujarat Gas Limited (NSE:GUJGASLTD) price-to-earnings (or ‘P/E’) ratio of 33.4x currently seems quite ‘middle-of-the-road’ compared to the market in India, where the average P/E ratio is around 32x. Although it is not wise to simply ignore the price-to-earnings ratio without explanation, as investors may be ignoring a clear opportunity or a costly mistake.

While the market has seen earnings growth lately, Gujarat Gas’s earnings have been in the opposite direction, which isn’t great. One possibility is that the price/earnings ratio is muted as investors believe this poor earnings performance will turn around. You would really hope so, otherwise you would pay a relatively high price for a company with this kind of growth profile.

Check out our latest analysis for Gujarat Gas

NSEI:GUJGASLTD Price-to-Earnings Ratio vs. Sector May 6, 2024

If you want to see what analysts are predicting for the future, check out our free report on gujarat gas.

Is there any growth for Gujarat gas?

There is an inherent assumption that a company must match the market for price-to-earnings ratios such as that of Gujarat Gas to be considered reasonable.

Looking at the past year’s earnings figures, the company’s profits have dishearteningly fallen to 31%. As a result, profits from three years ago are also down a total of 6.2%. Shareholders would therefore have felt gloomy about earnings growth in the medium term.

Looking to the future, estimates from the analysts covering the company suggest that earnings should grow 25% in the coming year. That appears to be similar to the 24% growth forecast for the broader market.

With this information, we can see why Gujarat Gas is trading at a fairly similar price/earnings to the market. It seems most investors expect average future growth and are only willing to pay a modest amount for the stock.

The most important takeaway

We normally caution against looking too much at price-to-earnings ratios when making investment decisions, although this can reveal a lot about what other market participants think about the company.

As we suspected, our review of Gujarat Gas’ analyst forecasts found that its market-beating earnings outlook is contributing to its current price-to-earnings ratio. At this stage, investors believe that the potential for an improvement or deterioration in earnings is not great enough to justify a high or low price-to-earnings ratio. It’s hard to see the stock price moving significantly in either direction in the near future under these conditions.

You should always consider risks, for example – Gujarat Gas has 1 warning sign we believe you should be aware of this.

If this risks will make you reconsider your opinion about Gujarat Gasexplore our interactive list of high-quality stocks to get an idea of ​​what else is out there.

Valuation is complex, but we help make it simple.

Find out whether Gujarat Gas may be over or undervalued by viewing our comprehensive analysis, including: fair value estimates, risks and cautions, dividends, insider transactions and financial health.

View the Free Analysis

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.