Dishman Carbogen Amcis Limited's (NSE:DCAL) Share Price Could Signal Some Risk

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 13x, you may consider Dishman Carbogen Amcis Limited (NSE:DCAL) as a stock to potentially avoid with its 18.4x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Dishman Carbogen Amcis has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

See our latest analysis for Dishman Carbogen Amcis

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Is There Enough Growth For Dishman Carbogen Amcis?

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

Retrospectively, the last year delivered a frustrating 14% decrease to the company's bottom line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 24% overall rise in EPS. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to slump, contracting by 1.3% during the coming year according to the three analysts following the company. Meanwhile, the broader market is forecast to expand by 0.7%, which paints a poor picture.

With this information, we find it concerning that Dishman Carbogen Amcis is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

What We Can Learn From Dishman Carbogen Amcis' P/E?

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.

Our examination of Dishman Carbogen Amcis' analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings are highly unlikely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Dishman Carbogen Amcis that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.

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