K.P.R. Mill Limited (NSE:KPRMILL) Investors Are Less Pessimistic Than Expected

With a price-to-earnings (or "P/E") ratio of 40.4x K.P.R. Mill Limited (NSE:KPRMILL) may be sending very bearish signals at the moment, given that almost half of all companies in India have P/E ratios under 24x and even P/E's lower than 14x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

With earnings growth that's inferior to most other companies of late, K.P.R. Mill has been relatively sluggish. One possibility is that the P/E is high because investors think this lacklustre earnings performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

View our latest analysis for K.P.R. Mill

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

What Are Growth Metrics Telling Us About The High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like K.P.R. Mill's to be considered reasonable.

Retrospectively, the last year delivered a decent 2.9% gain to the company's bottom line. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to climb by 20% each year during the coming three years according to the seven analysts following the company. That's shaping up to be similar to the 19% each year growth forecast for the broader market.

With this information, we find it interesting that K.P.R. Mill is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From K.P.R. Mill's 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 K.P.R. Mill currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

You always need to take note of risks, for example - K.P.R. Mill 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.