Zee Entertainment Enterprises Limited's (NSE:ZEEL) Appeal Among Investors is Clear

Zee Entertainment Enterprises Limited's (NSE:ZEEL) price-to-earnings (or "P/E") ratio of 41.9x may appear to be a sell right now when compared to the Indian market, where around half of the businesses have P/E ratios below 34x, and P/E ratios below 20x are relatively typical. However, the P/E ratio could be high for a cause, and further analysis is needed to evaluate whether it is warranted.

Zee Entertainment Enterprises has recently performed relatively well in terms of earnings growth, outpacing most other corporations. The P/E ratio is undoubtedly high because investors believe the excellent earnings performance will continue. You'd hope so; otherwise, you're paying a steep fee for no apparent reason.

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

To justify its P/E ratio, Zee Entertainment Enterprises must outperform the market.

If we look at the previous year's profits growth, the corporation had a 155% gain. Despite this significant recent growth, it is still fighting to catch up, with three-year EPS falling by 67% overall. As a result, stockholders would have been pessimistic about medium-term rates of profits growth.

Moving forward, analysts tracking the firm expect profits to expand by 55% per year over the next three years. Meanwhile, the rest of the market is expected to grow at a slower rate of 21% per year, making it less appealing.

In light of this, it's logical that Zee Entertainment Enterprises' P/E ratio is higher than the majority of other firms. Most investors appear to predict substantial future growth and are prepared to pay a higher price for the stock.

The Key Takeaway

The price-to-earnings ratio is believed to be a poor measure of value in some industries, although it may be an effective company sentiment indicator.

As we expected, our analysis of Zee Entertainment Enterprises' analyst projections confirmed that its strong profits potential is contributing to its high P/E ratio. Shareholders are now happy with the P/E ratio because they are certain that future earnings will not be jeopardised. Given these circumstances, it is difficult to imagine the share price decreasing much in the near future.