What J. B. Chemicals & Pharmaceuticals Limited's (NSE:JBCHEPHARM) P/E Is Not Telling You

With a price-to-earnings (or "P/E") ratio of 38x J. B. Chemicals & Pharmaceuticals Limited (NSE:JBCHEPHARM) may be sending bearish signals at the moment, given that almost half of all companies in India have P/E ratios under 28x and even P/E's lower than 15x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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Recent times have been advantageous for J. B. Chemicals & Pharmaceuticals as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out 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.

How Is J. B. Chemicals & Pharmaceuticals' Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 16% last year. Pleasingly, EPS has also lifted 82% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the twelve analysts covering the company suggest earnings should grow by 17% per annum over the next three years. With the market predicted to deliver 19% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's alarming that J. B. Chemicals & Pharmaceuticals' P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From J. B. Chemicals & Pharmaceuticals' P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that J. B. Chemicals & Pharmaceuticals currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 1 warning sign for J. B. Chemicals & Pharmaceuticals that you need to take into consideration.

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.