Getting In Cheap On Greenlam Industries Limited (NSE:GREENLAM) Might Be Difficult
When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 31x, you may consider Greenlam Industries Limited (NSE:GREENLAM) as a stock to potentially avoid with its 44.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.
Recent times have been advantageous for Greenlam Industries as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.
View our latest analysis for Greenlam Industries
How Is Greenlam Industries' Growth Trending?
In order to justify its P/E ratio, Greenlam Industries would need to produce impressive growth in excess of the market.
If we review the last year of earnings growth, the company posted a terrific increase of 34%. The strong recent performance means it was also able to grow EPS by 129% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Turning to the outlook, the next three years should generate growth of 24% per annum as estimated by the ten analysts watching the company. With the market only predicted to deliver 19% each year, the company is positioned for a stronger earnings result.
With this information, we can see why Greenlam Industries is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Final Word
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
As we suspected, our examination of Greenlam Industries' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.
Having said that, be aware Greenlam Industries is showing 3 warning signs in our investment analysis, and 2 of those make us uncomfortable.
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 low P/E.
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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.
About NSEI:GREENLAM
Greenlam Industries
Manufactures and sells laminates, decorative veneers, and their allied products in India and internationally.
Reasonable growth potential average dividend payer.
