Pinning Down Dalmia Bharat Limited's (NSE:DALBHARAT) P/E Is Difficult Right Now

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 29x, you may consider Dalmia Bharat Limited (NSE:DALBHARAT) as a stock to potentially avoid with its 42x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

There hasn't been much to differentiate Dalmia Bharat's and the market's earnings growth lately. One possibility is that the P/E is high because investors think this modest earnings performance will accelerate. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Dalmia Bharat

Want the full picture on analyst estimates for the company? Then our free report on Dalmia Bharat will help you uncover what's on the horizon.

How Is Dalmia Bharat's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Dalmia Bharat's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 16%. The strong recent performance means it was also able to grow EPS by 124% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 19% each year during the coming three years according to the analysts following the company. With the market predicted to deliver 19% growth per year, the company is positioned for a comparable earnings result.

With this information, we find it interesting that Dalmia Bharat is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From Dalmia Bharat's 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.

Our examination of Dalmia Bharat's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

You always need to take note of risks, for example - Dalmia Bharat has 1 warning sign we think you should be aware of.

You might be able to find a better investment than Dalmia Bharat. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.