There Is A Reason Deepak Fertilisers And Petrochemicals Corporation Limited's (NSE:DEEPAKFERT) Price Is Undemanding

With a price-to-earnings (or "P/E") ratio of 12.1x Deepak Fertilisers And Petrochemicals Corporation Limited (NSE:DEEPAKFERT) may be sending very bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 30x and even P/E's higher than 55x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Deepak Fertilisers And Petrochemicals hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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.

View our latest analysis for Deepak Fertilisers And Petrochemicals

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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 expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 62%. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 13% in total. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 20% over the next year. With the market predicted to deliver 24% growth , the company is positioned for a weaker earnings result.

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

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 3 warning signs for Deepak Fertilisers And Petrochemicals you should be aware of.

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.