Investors Holding Back On Mangalore Chemicals & Fertilizers Limited (NSE:MANGCHEFER)

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 14x, you may consider Mangalore Chemicals & Fertilizers Limited (NSE:MANGCHEFER) as a highly attractive investment with its 6.4x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's exceedingly strong of late, Mangalore Chemicals & Fertilizers has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 out of favour.

Check out our latest analysis for Mangalore Chemicals & Fertilizers

Although there are no analyst estimates available for Mangalore Chemicals & Fertilizers, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Mangalore Chemicals & Fertilizers' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Mangalore Chemicals & Fertilizers' is when the company's growth is on track to lag the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 97% last year. The latest three year period has also seen an excellent 233% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 0.7% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Mangalore Chemicals & Fertilizers is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Mangalore Chemicals & Fertilizers' P/E?

The price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Mangalore Chemicals & Fertilizers currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

You need to take note of risks, for example - Mangalore Chemicals & Fertilizers has 3 warning signs (and 1 which is potentially serious) we think you should know about.

If you're unsure about the strength of Mangalore Chemicals & Fertilizers' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. 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.
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