What Amines & Plasticizers Limited's (NSE:AMNPLST) P/E Is Not Telling You

There wouldn't be many who think Amines & Plasticizers Limited's (NSE:AMNPLST) price-to-earnings (or "P/E") ratio of 28.1x is worth a mention when the median P/E in India is similar at about 30x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

With earnings growth that's exceedingly strong of late, Amines & Plasticizers has been doing very well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Amines & Plasticizers

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Amines & Plasticizers will help you shine a light on its historical performance.

How Is Amines & Plasticizers' Growth Trending?

The only time you'd be comfortable seeing a P/E like Amines & Plasticizers' is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 79% last year. As a result, it also grew EPS by 18% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 24% shows it's noticeably less attractive on an annualised basis.

In light of this, it's curious that Amines & Plasticizers' P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

What We Can Learn From Amines & Plasticizers' P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Amines & Plasticizers currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are uncomfortable with the P/E as this earnings performance isn't likely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Amines & Plasticizers with six simple checks on some of these key factors.

You might be able to find a better investment than Amines & Plasticizers. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.