PG Electroplast Limited's (NSE:PGEL) Share Price Is Still Matching Investor Opinion Despite 30% Slump

PG Electroplast Limited (NSE:PGEL) shareholders that were waiting for something to happen have been dealt a blow with a 30% share price drop in the last month. The recent drop has obliterated the annual return, with the share price now down 6.1% over that longer period.

In spite of the heavy fall in price, PG Electroplast may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 58.1x, since almost half of all companies in India have P/E ratios under 27x and even P/E's lower than 15x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

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Recent times have been advantageous for PG Electroplast as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for PG Electroplast

Want the full picture on analyst estimates for the company? Then our free report on PG Electroplast will help you uncover what's on the horizon.

What Are Growth Metrics Telling Us About The High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like PG Electroplast's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 37%. Pleasingly, EPS has also lifted 277% in aggregate from three years ago, thanks to the last 12 months of growth. 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 29% each year as estimated by the seven analysts watching the company. That's shaping up to be materially higher than the 19% each year growth forecast for the broader market.

In light of this, it's understandable that PG Electroplast's 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 PG Electroplast's P/E?

A significant share price dive has done very little to deflate PG Electroplast's very lofty 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.

As we suspected, our examination of PG Electroplast's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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 is also worth noting that we have found 1 warning sign for PG Electroplast that you need to take into consideration.

You might be able to find a better investment than PG Electroplast. 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.