Why We're Not Concerned About Alembic Pharmaceuticals Limited's (NSE:APLLTD) Share Price

It's not a stretch to say that Alembic Pharmaceuticals Limited's (NSE:APLLTD) price-to-earnings (or "P/E") ratio of 30.7x right now seems quite "middle-of-the-road" compared to the market in India, where the median P/E ratio is around 31x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Alembic Pharmaceuticals' earnings growth of late has been pretty similar to most other companies. It seems that many are expecting the mediocre earnings performance to persist, which has held the P/E back. If this is the case, then at least existing shareholders won't be losing sleep over the current share price.

See our latest analysis for Alembic Pharmaceuticals

Keen to find out how analysts think Alembic Pharmaceuticals' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Alembic Pharmaceuticals' Growth Trending?

In order to justify its P/E ratio, Alembic Pharmaceuticals would need to produce growth that's similar to the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 22% last year. Still, incredibly EPS has fallen 26% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the eleven analysts covering the company suggest earnings should grow by 18% each year over the next three years. That's shaping up to be similar to the 20% each year growth forecast for the broader market.

In light of this, it's understandable that Alembic Pharmaceuticals' P/E sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What We Can Learn From Alembic Pharmaceuticals' P/E?

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.

We've established that Alembic Pharmaceuticals maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

Plus, you should also learn about this 1 warning sign we've spotted with Alembic Pharmaceuticals.

You might be able to find a better investment than Alembic Pharmaceuticals. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.