Improved Earnings Required Before Plastiblends India Limited (NSE:PLASTIBLEN) Shares Find Their Feet

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 31x, you may consider Plastiblends India Limited (NSE:PLASTIBLEN) as an attractive investment with its 19.8x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Plastiblends India has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Plastiblends India

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

Is There Any Growth For Plastiblends India?

The only time you'd be truly comfortable seeing a P/E as low as Plastiblends India's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 29% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 7.6% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 25% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's understandable that Plastiblends India's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

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 Plastiblends India revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

It is also worth noting that we have found 3 warning signs for Plastiblends India (1 makes us a bit uncomfortable!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Plastiblends India, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.