Genpact Limited's (NYSE:G) Price In Tune With Earnings
It's not a stretch to say that Genpact Limited's (NYSE:G) price-to-earnings (or "P/E") ratio of 14.7x right now seems quite "middle-of-the-road" compared to the market in the United States, where the median P/E ratio is around 17x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Genpact has been doing quite well of late. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.
See our latest analysis for Genpact
Want the full picture on analyst estimates for the company? Then our free report on Genpact will help you uncover what's on the horizon.
Does Growth Match The P/E?
In order to justify its P/E ratio, Genpact would need to produce growth that's similar to the market.
If we review the last year of earnings growth, the company posted a terrific increase of 29%. The latest three year period has also seen an excellent 43% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.
Turning to the outlook, the next year should generate growth of 9.4% as estimated by the eleven analysts watching the company. With the market predicted to deliver 10% growth , the company is positioned for a comparable earnings result.
In light of this, it's understandable that Genpact's P/E sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.
The Key Takeaway
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 Genpact maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.
It is also worth noting that we have found 2 warning signs for Genpact that you need to take into consideration.
You might be able to find a better investment than Genpact. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
