What You Can Learn From Ganesha Ecosphere Limited's (NSE:GANECOS) P/E After Its 27% Share Price Crash

Unfortunately for some shareholders, the Ganesha Ecosphere Limited (NSE:GANECOS) share price has dived 27% in the last thirty days, prolonging recent pain. Still, a bad month hasn't completely ruined the past year with the stock gaining 25%, which is great even in a bull market.

In spite of the heavy fall in price, given around half the companies in India have price-to-earnings ratios (or "P/E's") below 24x, you may still consider Ganesha Ecosphere as a stock to potentially avoid with its 33x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Ganesha Ecosphere certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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How Is Ganesha Ecosphere's Growth Trending?

Ganesha Ecosphere's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 157% last year. The latest three year period has also seen an excellent 144% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the sole analyst covering the company suggest earnings should grow by 39% over the next year. That's shaping up to be materially higher than the 25% 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 Final Word

There's still some solid strength behind Ganesha Ecosphere's P/E, if not its share price lately. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

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. 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.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Ganesha Ecosphere with six simple checks will allow you to discover any risks that could be an issue.

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.