Getting In Cheap On MCON Rasayan India Limited (NSE:MCON) Might Be Difficult

With a price-to-earnings (or "P/E") ratio of 66.8x MCON Rasayan India Limited (NSE:MCON) may be sending very bearish signals at the moment, given that almost half of all companies in India have P/E ratios under 25x and even P/E's lower than 13x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times have been quite advantageous for MCON Rasayan India as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for MCON Rasayan India

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

How Is MCON Rasayan India's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as MCON Rasayan India's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 99%. The strong recent performance means it was also able to grow EPS by 471% 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.

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

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

What We Can Learn From MCON Rasayan India's P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that MCON Rasayan India 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.

You need to take note of risks, for example - MCON Rasayan India has 5 warning signs (and 4 which are concerning) we think you should know about.

Of course, you might also be able to find a better stock than MCON Rasayan India. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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.