Market Still Lacking Some Conviction On Blue Pebble Limited (NSE:BLUEPEBBLE)

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 35x, you may consider Blue Pebble Limited (NSE:BLUEPEBBLE) as an attractive investment with its 26.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings growth that's exceedingly strong of late, Blue Pebble 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 that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Blue Pebble

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Blue Pebble's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Blue Pebble's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 91%. The latest three year period has also seen an excellent 1,768% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is only predicted to deliver 26% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it odd that Blue Pebble is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Blue Pebble's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Blue Pebble revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. 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.

It is also worth noting that we have found 3 warning signs for Blue Pebble (1 is concerning!) that you need to take into consideration.

Of course, you might also be able to find a better stock than Blue Pebble. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.