Crompton Greaves Consumer Electricals Limited's (NSE:CROMPTON) P/E Is On The Mark

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 34x, you may consider Crompton Greaves Consumer Electricals Limited (NSE:CROMPTON) as a stock to avoid entirely with its 57x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Crompton Greaves Consumer Electricals could be doing better as it's been growing earnings less than most other companies lately. It might be that many expect the uninspiring earnings performance to recover significantly, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Crompton Greaves Consumer Electricals

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Crompton Greaves Consumer Electricals.

How Is Crompton Greaves Consumer Electricals' Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Crompton Greaves Consumer Electricals' to be considered reasonable.

Retrospectively, the last year delivered a decent 2.9% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen an unpleasant 28% overall drop in EPS. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 25% each year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 21% per annum growth forecast for the broader market.

With this information, we can see why Crompton Greaves Consumer Electricals is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Crompton Greaves Consumer Electricals' P/E

We'd say 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 Crompton Greaves Consumer Electricals maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - Crompton Greaves Consumer Electricals has 1 warning sign we think you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.