Bhansali Engineering Polymers Limited's (NSE:BEPL) Price Is Right But Growth Is Lacking After Shares Rocket 27%

Despite an already strong run, Bhansali Engineering Polymers Limited (NSE:BEPL) shares have been powering on, with a gain of 27% in the last thirty days. The last 30 days bring the annual gain to a very sharp 80%.

Although its price has surged higher, Bhansali Engineering Polymers' price-to-earnings (or "P/E") ratio of 23.5x might still make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 35x and even P/E's above 64x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Bhansali Engineering Polymers certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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.

Taking a look back first, we see that the company grew earnings per share by an impressive 31% last year. Still, incredibly EPS has fallen 56% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 25% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's understandable that Bhansali Engineering Polymers' P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

Despite Bhansali Engineering Polymers' shares building up a head of steam, its P/E still lags most other companies. 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.

Before you settle on your opinion, we've discovered 1 warning sign for Bhansali Engineering Polymers that you should be aware of.

If these risks are making you reconsider your opinion on Bhansali Engineering Polymers, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.