Dharmaj Crop Guard Limited's (NSE:DHARMAJ) Price Is Right But Growth Is Lacking After Shares Rocket 34%

Dharmaj Crop Guard Limited (NSE:DHARMAJ) shares have had a really impressive month, gaining 34% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 71%.

In spite of the firm bounce in price, Dharmaj Crop Guard may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 22.7x, since almost half of all companies in India have P/E ratios greater than 34x and even P/E's higher than 66x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

The earnings growth achieved at Dharmaj Crop Guard over the last year would be more than acceptable for most companies. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If you 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 Dharmaj Crop Guard

Although there are no analyst estimates available for Dharmaj Crop Guard, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Dharmaj Crop Guard's to be considered reasonable.

Retrospectively, the last year delivered a decent 9.2% gain to the company's bottom line. Pleasingly, EPS has also lifted 55% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Dharmaj Crop Guard is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Dharmaj Crop Guard's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Dharmaj Crop Guard revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

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

If these risks are making you reconsider your opinion on Dharmaj Crop Guard, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com