Mrs. Bectors Food Specialities Limited (NSE:BECTORFOOD) Investors Are Less Pessimistic Than Expected

With a price-to-earnings (or "P/E") ratio of 30.5x Mrs. Bectors Food Specialities Limited (NSE:BECTORFOOD) may be sending very bearish signals at the moment, given that almost half of all companies in India have P/E ratios under 18x and even P/E's lower than 9x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Mrs. Bectors Food Specialities certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Mrs. Bectors Food Specialities

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

Is There Enough Growth For Mrs. Bectors Food Specialities?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Mrs. Bectors Food Specialities' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 121%. Pleasingly, EPS has also lifted 91% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 4.5% as estimated by the two analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 34%, which is noticeably more attractive.

With this information, we find it concerning that Mrs. Bectors Food Specialities is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Mrs. Bectors Food Specialities' P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Mrs. Bectors Food Specialities' analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Mrs. Bectors Food Specialities that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).

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