Pinning Down Steelcast Limited's (NSE:STEELCAS) P/E Is Difficult Right Now

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 20x, you may consider Steelcast Limited (NSE:STEELCAS) as a stock to potentially avoid with its 25.2x 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 lofty.

With earnings growth that's exceedingly strong of late, Steelcast has been doing very well. 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.

Check out our latest analysis for Steelcast

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 Steelcast's earnings, revenue and cash flow.

Is There Enough Growth For Steelcast?

In order to justify its P/E ratio, Steelcast would need to produce impressive growth in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 417%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 24% shows it's an unpleasant look.

With this information, we find it concerning that Steelcast is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

What We Can Learn From Steelcast'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 Steelcast currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You always need to take note of risks, for example - Steelcast has 2 warning signs we think you should be aware of.

If you're unsure about the strength of Steelcast's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.