Some Shareholders Feeling Restless Over Mrs. Bectors Food Specialities Limited's (NSE:BECTORFOOD) P/E Ratio

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 28x, you may consider Mrs. Bectors Food Specialities Limited (NSE:BECTORFOOD) as a stock to avoid entirely with its 48.8x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Mrs. Bectors Food Specialities 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Mrs. Bectors Food Specialities

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Is There Enough Growth For Mrs. Bectors Food Specialities?

In order to justify its P/E ratio, Mrs. Bectors Food Specialities would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 85% last year. Pleasingly, EPS has also lifted 91% 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.

Looking ahead now, EPS is anticipated to climb by 17% during the coming year according to the seven analysts following the company. That's shaping up to be materially lower than the 24% growth forecast for the broader market.

In light of this, it's alarming that Mrs. Bectors Food Specialities' P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

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

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 Mrs. Bectors Food Specialities currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Mrs. Bectors Food Specialities with six simple checks on some of these key factors.

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 low P/E).

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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.