Shree Pushkar Chemicals & Fertilisers Limited (NSE:SHREEPUSHK) Shares Fly 25% But Investors Aren't Buying For Growth

Shree Pushkar Chemicals & Fertilisers Limited (NSE:SHREEPUSHK) shareholders are no doubt pleased to see that the share price has bounced 25% in the last month, although it is still struggling to make up recently lost ground. Looking back a bit further, it's encouraging to see the stock is up 69% in the last year.

Although its price has surged higher, Shree Pushkar Chemicals & Fertilisers' price-to-earnings (or "P/E") ratio of 16.8x might still make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 28x and even P/E's above 54x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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With earnings growth that's exceedingly strong of late, Shree Pushkar Chemicals & Fertilisers has been doing very well. 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.

See our latest analysis for Shree Pushkar Chemicals & Fertilisers

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shree Pushkar Chemicals & Fertilisers' earnings, revenue and cash flow.

How Is Shree Pushkar Chemicals & Fertilisers' Growth Trending?

Shree Pushkar Chemicals & Fertilisers' 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 an exceptional 56% 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. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 23% 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 Bottom Line On Shree Pushkar Chemicals & Fertilisers' P/E

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

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. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 2 warning signs we've spotted with Shree Pushkar Chemicals & Fertilisers.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.