Little Excitement Around Chambal Fertilisers and Chemicals Limited's (NSE:CHAMBLFERT) Earnings

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 35x, you may consider Chambal Fertilisers and Chemicals Limited (NSE:CHAMBLFERT) as a highly attractive investment with its 14.5x 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.

Recent times have been advantageous for Chambal Fertilisers and Chemicals as its earnings have been rising faster 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.

Check out our latest analysis for Chambal Fertilisers and Chemicals

Keen to find out how analysts think Chambal Fertilisers and Chemicals' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Chambal Fertilisers and Chemicals?

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.

Taking a look back first, we see that the company grew earnings per share by an impressive 36% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 17% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 6.8% per annum during the coming three years according to the dual analysts following the company. With the market predicted to deliver 21% growth per annum, the company is positioned for a weaker earnings result.

With this information, we can see why Chambal Fertilisers and Chemicals is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Chambal Fertilisers and Chemicals' P/E?

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.

Plus, you should also learn about this 1 warning sign we've spotted with Chambal Fertilisers and Chemicals.

If these risks are making you reconsider your opinion on Chambal Fertilisers and Chemicals, 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.