Earnings Not Telling The Story For Balkrishna Industries Limited (NSE:BALKRISIND)

With a median price-to-earnings (or "P/E") ratio of close to 34x in India, you could be forgiven for feeling indifferent about Balkrishna Industries Limited's (NSE:BALKRISIND) P/E ratio of 36.5x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With earnings growth that's superior to most other companies of late, Balkrishna Industries has been doing relatively well. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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How Is Balkrishna Industries' Growth Trending?

In order to justify its P/E ratio, Balkrishna Industries 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 51%. The latest three year period has also seen a 18% overall rise in EPS, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 12% per year over the next three years. Meanwhile, the rest of the market is forecast to expand by 20% per annum, which is noticeably more attractive.

With this information, we find it interesting that Balkrishna Industries is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From Balkrishna Industries' P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Balkrishna Industries' analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Balkrishna Industries that you should be aware of.

If these risks are making you reconsider your opinion on Balkrishna Industries, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.