Risks Still Elevated At These Prices As Quaker Chemical Corporation (NYSE:KWR) Shares Dive 27%

Quaker Chemical Corporation (NYSE:KWR) shareholders that were waiting for something to happen have been dealt a blow with a 27% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 48% share price drop.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Quaker Chemical's P/E ratio of 15.5x, since the median price-to-earnings (or "P/E") ratio in the United States is also close to 16x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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Recent earnings growth for Quaker Chemical has been in line with the market. It seems that many are expecting the mediocre earnings performance to persist, which has held the P/E back. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

Check out our latest analysis for Quaker Chemical

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Quaker Chemical .

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

Quaker Chemical's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a worthy increase of 3.9%. Still, lamentably EPS has fallen 3.1% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 8.9% over the next year. Meanwhile, the rest of the market is forecast to expand by 14%, which is noticeably more attractive.

In light of this, it's curious that Quaker Chemical's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be 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 Quaker Chemical's P/E?

With its share price falling into a hole, the P/E for Quaker Chemical looks quite average now. 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 Quaker Chemical currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Quaker Chemical with six simple checks.

If these risks are making you reconsider your opinion on Quaker Chemical, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.