Balaji Amines Limited (NSE:BALAMINES) Screens Well But There Might Be A Catch

With a median price-to-earnings (or "P/E") ratio of close to 27x in India, you could be forgiven for feeling indifferent about Balaji Amines Limited's (NSE:BALAMINES) P/E ratio of 28x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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Balaji Amines hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Balaji Amines

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Balaji Amines.

Is There Some Growth For Balaji Amines?

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

Retrospectively, the last year delivered a frustrating 28% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 65% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 59% over the next year. That's shaping up to be materially higher than the 25% growth forecast for the broader market.

With this information, we find it interesting that Balaji Amines is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Balaji Amines' 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.

We've established that Balaji Amines currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for Balaji Amines (1 is significant!) that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.