Himadri Speciality Chemical Limited's (NSE:HSCL) Shares Not Telling The Full Story

Himadri Speciality Chemical Limited's (NSE:HSCL) price-to-earnings (or "P/E") ratio of 12.3x might make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 16x and even P/E's above 39x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times haven't been advantageous for Himadri Speciality Chemical as its earnings have been falling quicker than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Himadri Speciality Chemical

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Is There Any Growth For Himadri Speciality Chemical?

In order to justify its P/E ratio, Himadri Speciality Chemical would need to produce sluggish growth that's trailing 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 37%. Even so, admirably EPS has lifted 148% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Turning to the outlook, the next year should generate growth of 15% as estimated by the only analyst watching the company. With the market only predicted to deliver 9.7%, the company is positioned for a stronger earnings result.

With this information, we find it odd that Himadri Speciality Chemical is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Himadri Speciality Chemical'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.

We've established that Himadri Speciality Chemical currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Before you settle on your opinion, we've discovered 1 warning sign for Himadri Speciality Chemical that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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