Stock Analysis
Adani Ports and Special Economic Zone Limited (NSE:ADANIPORTS) shareholders have had their patience rewarded with a 33% share price jump in the last month. Looking further back, the 21% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.
After such a large jump in price, Adani Ports and Special Economic Zone's price-to-earnings (or "P/E") ratio of 36.6x might make it look like a sell right now compared to the market in India, where around half of the companies have P/E ratios below 29x and even P/E's below 16x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.
Adani Ports and Special Economic Zone's earnings growth of late has been pretty similar to most other companies. It might be that many expect the mediocre earnings performance to strengthen positively, which has kept the P/E from falling. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
See our latest analysis for Adani Ports and Special Economic Zone
Adani Ports and Special Economic Zone's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 16% last year. The latest three year period has also seen an excellent 56% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Looking ahead now, EPS is anticipated to climb by 24% per year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 19% each year growth forecast for the broader market.
With this information, we can see why Adani Ports and Special Economic Zone 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.
Adani Ports and Special Economic Zone's P/E is getting right up there since its shares have risen strongly. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that Adani Ports and Special Economic Zone maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.
Before you settle on your opinion, we've discovered 2 warning signs for Adani Ports and Special Economic Zone that you should be aware of.
Of course, you might also be able to find a better stock than Adani Ports and Special Economic Zone. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
Find out whether Adani Ports and Special Economic Zone 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.
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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.
Adani Ports and Special Economic Zone Limited, together with its subsidiaries, operates and maintains port infrastructure facilities in India.
Reasonable growth potential with adequate balance sheet and pays a dividend.
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