Alkyl Amines Chemicals Limited's (NSE:ALKYLAMINE) Shareholders Might Be Looking For Exit

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 27x, you may consider Alkyl Amines Chemicals Limited (NSE:ALKYLAMINE) as a stock to avoid entirely with its 48.4x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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Recent times have been advantageous for Alkyl Amines Chemicals as its earnings have been rising faster 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 Alkyl Amines Chemicals

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

How Is Alkyl Amines Chemicals' Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Alkyl Amines Chemicals' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 26% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 18% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 17% per annum during the coming three years according to the three analysts following the company. That's shaping up to be similar to the 19% each year growth forecast for the broader market.

With this information, we find it interesting that Alkyl Amines Chemicals is trading at a high P/E compared to the market. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On Alkyl Amines Chemicals' 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 Alkyl Amines Chemicals' analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You always need to take note of risks, for example - Alkyl Amines Chemicals has 1 warning sign we think you should be aware of.

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.