Oriental Carbon & Chemicals Limited's (NSE:OCCL) Prospects Need A Boost To Lift Shares

Oriental Carbon & Chemicals Limited's (NSE:OCCL) price-to-earnings (or "P/E") ratio of 6.3x might make it look like a strong buy right now compared to the market in India, where around half of the companies have P/E ratios above 34x and even P/E's above 65x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent earnings growth for Oriental Carbon & Chemicals has been in line with the market. It might be that many expect the mediocre earnings performance to degrade, which has repressed the P/E. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

Check out our latest analysis for Oriental Carbon & Chemicals

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Oriental Carbon & Chemicals.

How Is Oriental Carbon & Chemicals' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Oriental Carbon & Chemicals' is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 23%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 51% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 13% during the coming year according to the sole analyst following the company. Meanwhile, the broader market is forecast to expand by 26%, which paints a poor picture.

With this information, we are not surprised that Oriental Carbon & Chemicals is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

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.

We've established that Oriental Carbon & Chemicals maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Oriental Carbon & Chemicals (of which 1 can't be ignored!) you should know about.

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.