Market Participants Recognise Himadri Speciality Chemical Limited's (NSE:HSCL) Earnings

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 29x, you may consider Himadri Speciality Chemical Limited (NSE:HSCL) as a stock to potentially avoid with its 41.3x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for Himadri Speciality Chemical as its earnings have been rising very briskly. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Himadri Speciality Chemical

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

How Is Himadri Speciality Chemical's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Himadri Speciality Chemical's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered an exceptional 249% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 233% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 26% shows it's noticeably more attractive on an annualised basis.

In light of this, it's understandable that Himadri Speciality Chemical's P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Bottom Line On 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 maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for Himadri Speciality Chemical (1 is significant!) that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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

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.