Improved Earnings Required Before Shree Pushkar Chemicals & Fertilisers Limited (NSE:SHREEPUSHK) Stock's 27% Jump Looks Justified

Shree Pushkar Chemicals & Fertilisers Limited (NSE:SHREEPUSHK) shareholders have had their patience rewarded with a 27% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 80% in the last year.

In spite of the firm bounce in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 27x, you may still consider Shree Pushkar Chemicals & Fertilisers as an attractive investment with its 20.1x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Shree Pushkar Chemicals & Fertilisers certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Shree Pushkar Chemicals & Fertilisers

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shree Pushkar Chemicals & Fertilisers will help you shine a light on its historical performance.

Is There Any Growth For Shree Pushkar Chemicals & Fertilisers?

There's an inherent assumption that a company should underperform the market for P/E ratios like Shree Pushkar Chemicals & Fertilisers' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 49% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why Shree Pushkar Chemicals & Fertilisers is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Despite Shree Pushkar Chemicals & Fertilisers' shares building up a head of steam, its P/E still lags most other companies. 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.

As we suspected, our examination of Shree Pushkar Chemicals & Fertilisers revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. 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 rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Shree Pushkar Chemicals & Fertilisers that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.