Chambal Fertilisers and Chemicals Limited's (NSE:CHAMBLFERT) Price Is Right But Growth Is Lacking After Shares Rocket 27%

Chambal Fertilisers and Chemicals Limited (NSE:CHAMBLFERT) shares have continued their recent momentum with a 27% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 91%.

In spite of the firm bounce in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 33x, you may still consider Chambal Fertilisers and Chemicals as a highly attractive investment with its 16.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Chambal Fertilisers and Chemicals certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Chambal Fertilisers and Chemicals

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Chambal Fertilisers and Chemicals.

What Are Growth Metrics Telling Us About The Low P/E?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Chambal Fertilisers and Chemicals' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 24% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 20% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 8.8% per year over the next three years. With the market predicted to deliver 22% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Chambal Fertilisers and Chemicals' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Chambal Fertilisers and Chemicals' P/E

Even after such a strong price move, Chambal Fertilisers and Chemicals' P/E still trails the rest of the market significantly. 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 Chambal Fertilisers and Chemicals' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 3 warning signs for Chambal Fertilisers and Chemicals that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.

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