Procter & Gamble Hygiene and Health Care Limited's (NSE:PGHH) Popularity With Investors Is Under Threat From Overpricing

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 33x, you may consider Procter & Gamble Hygiene and Health Care Limited (NSE:PGHH) as a stock to avoid entirely with its 74.4x P/E ratio. 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.

With earnings growth that's superior to most other companies of late, Procter & Gamble Hygiene and Health Care has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Procter & Gamble Hygiene and Health Care

Keen to find out how analysts think Procter & Gamble Hygiene and Health Care's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Procter & Gamble Hygiene and Health Care's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Procter & Gamble Hygiene and Health Care's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 31%. EPS has also lifted 11% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 16% over the next year. That's shaping up to be materially lower than the 26% growth forecast for the broader market.

With this information, we find it concerning that Procter & Gamble Hygiene and Health Care 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.

The Bottom Line On Procter & Gamble Hygiene and Health Care's P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Procter & Gamble Hygiene and Health Care'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. 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. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Procter & Gamble Hygiene and Health Care you should know about.

Of course, you might also be able to find a better stock than Procter & Gamble Hygiene and Health Care. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.