Bhansali Engineering Polymers Limited's (NSE:BEPL) Price Is Right But Growth Is Lacking After Shares Rocket 26%

Bhansali Engineering Polymers Limited (NSE:BEPL) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. The last 30 days bring the annual gain to a very sharp 49%.

Even after such a large jump in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 32x, you may still consider Bhansali Engineering Polymers as an attractive investment with its 16.8x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

For instance, Bhansali Engineering Polymers' receding earnings in recent times would have to be some food for thought. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Bhansali Engineering Polymers

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Bhansali Engineering Polymers' earnings, revenue and cash flow.

Is There Any Growth For Bhansali Engineering Polymers?

The only time you'd be truly comfortable seeing a P/E as low as Bhansali Engineering Polymers' is when the company's growth is on track to lag the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 22%. This means it has also seen a slide in earnings over the longer-term as EPS is down 14% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 24% shows it's an unpleasant look.

In light of this, it's understandable that Bhansali Engineering Polymers' P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Key Takeaway

Bhansali Engineering Polymers' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

As we suspected, our examination of Bhansali Engineering Polymers revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Bhansali Engineering Polymers with six simple checks.

Of course, you might also be able to find a better stock than Bhansali Engineering Polymers. 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.