Subdued Growth No Barrier To Colgate-Palmolive (India) Limited's (NSE:COLPAL) Price

With a price-to-earnings (or "P/E") ratio of 70.8x Colgate-Palmolive (India) Limited (NSE:COLPAL) may be sending very bearish signals at the moment, given that almost half of all companies in India have P/E ratios under 34x and even P/E's lower than 19x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Colgate-Palmolive (India) as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Colgate-Palmolive (India)

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Colgate-Palmolive (India).

How Is Colgate-Palmolive (India)'s Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Colgate-Palmolive (India)'s to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 27%. The strong recent performance means it was also able to grow EPS by 32% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 9.0% per year over the next three years. With the market predicted to deliver 20% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's alarming that Colgate-Palmolive (India)'s P/E sits above the majority of other companies. 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.

The Bottom Line On Colgate-Palmolive (India)'s P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Colgate-Palmolive (India)'s analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. 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. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Colgate-Palmolive (India) that you need to be mindful 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 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.