J. B. Chemicals & Pharmaceuticals Limited (NSE:JBCHEPHARM) Not Flying Under The Radar

J. B. Chemicals & Pharmaceuticals Limited's (NSE:JBCHEPHARM) price-to-earnings (or "P/E") ratio of 47.4x might make it look like a strong sell right now compared to the market in India, where around half of the companies have P/E ratios below 28x and even P/E's below 15x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, J. B. Chemicals & Pharmaceuticals has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for J. B. Chemicals & Pharmaceuticals

If you'd like to see what analysts are forecasting going forward, you should check out our free report on J. B. Chemicals & Pharmaceuticals.

Is There Enough Growth For J. B. Chemicals & Pharmaceuticals?

In order to justify its P/E ratio, J. B. Chemicals & Pharmaceuticals would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 26%. The strong recent performance means it was also able to grow EPS by 58% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 22% each year as estimated by the twelve analysts watching the company. That's shaping up to be materially higher than the 20% each year growth forecast for the broader market.

In light of this, it's understandable that J. B. Chemicals & Pharmaceuticals' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From J. B. Chemicals & Pharmaceuticals' 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 J. B. Chemicals & Pharmaceuticals maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with J. B. Chemicals & Pharmaceuticals, and understanding these should be part of your investment process.

You might be able to find a better investment than J. B. Chemicals & 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.