After Leaping 32% CCL Products (India) Limited (NSE:CCL) Shares Are Not Flying Under The Radar

CCL Products (India) Limited (NSE:CCL) shares have continued their recent momentum with a 32% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 30% in the last year.

Since its price has surged higher, CCL Products (India)'s price-to-earnings (or "P/E") ratio of 42.6x might make it look like a sell right now compared to the market in India, where around half of the companies have P/E ratios below 34x and even P/E's below 19x are quite common. 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.

While the market has experienced earnings growth lately, CCL Products (India)'s earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for CCL Products (India)

Want the full picture on analyst estimates for the company? Then our free report on CCL Products (India) will help you uncover what's on the horizon.

Is There Enough Growth For CCL Products (India)?

CCL Products (India)'s P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered a frustrating 5.8% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 38% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 28% each year over the next three years. With the market only predicted to deliver 20% per year, the company is positioned for a stronger earnings result.

With this information, we can see why CCL Products (India) is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

CCL Products (India)'s P/E is getting right up there since its shares have risen strongly. 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.

We've established that CCL Products (India) 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for CCL Products (India) (of which 1 makes us a bit uncomfortable!) 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.