Pinning Down LTIMindtree Limited's (NSE:LTIM) P/E Is Difficult Right Now

With a price-to-earnings (or "P/E") ratio of 36.9x LTIMindtree Limited (NSE:LTIM) may be sending bearish signals at the moment, given that almost half of all companies in India have P/E ratios under 25x and even P/E's lower than 14x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's inferior to most other companies of late, LTIMindtree has been relatively sluggish. It might be that many expect the uninspiring earnings performance to recover significantly, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for LTIMindtree

Keen to find out how analysts think LTIMindtree's future stacks up against the industry? In that case, our free report is a great place to start.

How Is LTIMindtree's Growth Trending?

In order to justify its P/E ratio, LTIMindtree would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a decent 4.5% gain to the company's bottom line. The solid recent performance means it was also able to grow EPS by 12% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 14% each year as estimated by the analysts watching the company. With the market predicted to deliver 20% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's alarming that LTIMindtree's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On LTIMindtree's P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that LTIMindtree currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. 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. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You should always think about risks. Case in point, we've spotted 1 warning sign for LTIMindtree you should be aware of.

Of course, you might also be able to find a better stock than LTIMindtree. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.