Jubilant Ingrevia Limited's (NSE:JUBLINGREA) Share Price Matching Investor Opinion

Jubilant Ingrevia Limited's (NSE:JUBLINGREA) price-to-earnings (or "P/E") ratio of 51.7x might make it look like a strong sell right now compared to the market in India, where around half of the companies have P/E ratios below 26x and even P/E's below 15x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's inferior to most other companies of late, Jubilant Ingrevia has been relatively sluggish. One possibility is that the P/E is high because investors think this lacklustre earnings performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Jubilant Ingrevia

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jubilant Ingrevia.

Is There Enough Growth For Jubilant Ingrevia?

In order to justify its P/E ratio, Jubilant Ingrevia would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. This isn't what shareholders were looking for as it means they've been left with a 56% decline in EPS over the last three years in total. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 62% as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 24% growth forecast for the broader market.

In light of this, it's understandable that Jubilant Ingrevia's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Jubilant Ingrevia's P/E?

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 Jubilant Ingrevia's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Jubilant Ingrevia with six simple checks on some of these key factors.

You might be able to find a better investment than Jubilant Ingrevia. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.