I G Petrochemicals Limited's (NSE:IGPL) Shares Leap 26% Yet They're Still Not Telling The Full Story

I G Petrochemicals Limited (NSE:IGPL) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 12% is also fairly reasonable.

Even after such a large jump in price, I G Petrochemicals may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 24.3x, since almost half of all companies in India have P/E ratios greater than 32x and even P/E's higher than 61x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

I G 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 this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for I G Petrochemicals

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Is There Any Growth For I G Petrochemicals?

I G 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.

Retrospectively, the last year delivered a frustrating 71% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 26% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 25% during the coming year according to the one analyst following the company. That's shaping up to be similar to the 24% growth forecast for the broader market.

In light of this, it's peculiar that I G Petrochemicals' P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

What We Can Learn From I G Petrochemicals' P/E?

I G Petrochemicals' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of I G Petrochemicals' analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

It is also worth noting that we have found 2 warning signs for I G Petrochemicals that you need to take into consideration.

If you're unsure about the strength of I G Petrochemicals' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.