Ganesha Ecosphere Limited's (NSE:GANECOS) Share Price Is Still Matching Investor Opinion Despite 27% Slump

Ganesha Ecosphere Limited (NSE:GANECOS) shareholders that were waiting for something to happen have been dealt a blow with a 27% share price drop in the last month. Still, a bad month hasn't completely ruined the past year with the stock gaining 64%, which is great even in a bull market.

Although its price has dipped substantially, given close to half the companies in India have price-to-earnings ratios (or "P/E's") below 31x, you may still consider Ganesha Ecosphere as a stock to avoid entirely with its 48.3x 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.

Ganesha Ecosphere certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Ganesha Ecosphere

Keen to find out how analysts think Ganesha Ecosphere's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Ganesha Ecosphere's Growth Trending?

In order to justify its P/E ratio, Ganesha Ecosphere would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 77% gain to the company's bottom line. Pleasingly, EPS has also lifted 84% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 31% per annum as estimated by the lone analyst watching the company. That's shaping up to be materially higher than the 20% each year growth forecast for the broader market.

In light of this, it's understandable that Ganesha Ecosphere's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Ganesha Ecosphere's P/E

A significant share price dive has done very little to deflate Ganesha Ecosphere's very lofty P/E. 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.

We've established that Ganesha Ecosphere maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Ganesha Ecosphere that you need to be mindful of.

You might be able to find a better investment than Ganesha Ecosphere. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.