Deepak Fertilisers And Petrochemicals Corporation Limited's (NSE:DEEPAKFERT) 26% Dip In Price Shows Sentiment Is Matching Earnings

The Deepak Fertilisers And Petrochemicals Corporation Limited (NSE:DEEPAKFERT) share price has fared very poorly over the last month, falling by a substantial 26%. Looking at the bigger picture, even after this poor month the stock is up 87% in the last year.

Even after such a large drop in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 26x, you may still consider Deepak Fertilisers And Petrochemicals as an attractive investment with its 13.8x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Deepak Fertilisers And Petrochemicals has been doing relatively well. 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.

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

Deepak Fertilisers And Petrochemicals' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 80%. The latest three year period has also seen an excellent 45% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 12% during the coming year according to the two analysts following the company. Meanwhile, the rest of the market is forecast to expand by 25%, which is noticeably more attractive.

In light of this, it's understandable that Deepak Fertilisers And Petrochemicals' 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 Final Word

Deepak Fertilisers And Petrochemicals' P/E has taken a tumble along with its share price. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Deepak Fertilisers And Petrochemicals maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with Deepak Fertilisers And Petrochemicals.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.