SBI Cards and Payment Services Limited's (NSE:SBICARD) Earnings Haven't Escaped The Attention Of Investors

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 25x, you may consider SBI Cards and Payment Services Limited (NSE:SBICARD) as a stock to avoid entirely with its 42.6x 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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SBI Cards and Payment Services hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

View our latest analysis for SBI Cards and Payment Services

If you'd like to see what analysts are forecasting going forward, you should check out our free report on SBI Cards and Payment Services.

What Are Growth Metrics Telling Us About The High P/E?

SBI Cards and Payment Services' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered a frustrating 13% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 10% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 30% per annum as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 20% per annum, which is noticeably less attractive.

With this information, we can see why SBI Cards and Payment Services is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that SBI Cards and Payment Services 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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for SBI Cards and Payment Services (1 doesn't sit too well with us) you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.