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This article is intended for investors who wish to improve their understanding of price / earnings ratios (P / E ratios).
We will examine the P / E ratio of Shree Pushkar Chemicals & Fertilizers Limited (NSE: SHREEPUSHK) and consider what it tells us about the share price of the company.
Shree Pushkar Chemicals & Fertilizers has a price / earnings ratio of 12.35, based on the last twelve months.
In other words, at today's prices, investors are paying £ 12.35 for every £ 1 of earnings last year.
Discover our latest badysis for Shree Pushkar Chemicals & Fertilizers
How to calculate the price / benefit ratio?
the price formula at the profit is:
Price / earnings ratio = Share price ÷ Earnings per share (EPS)
Or for Shree Pushkar chemicals and fertilizers:
P / E of 12.35 = ¥ 172.15 13.9 13.94
(Based on the last twelve months until December 2018.)
Is a high price-earnings ratio good?
A higher P / E ratio implies that investors pay a higher price for the power to win the business.
This is not good or bad in itself, but a high P / E means that buyers have a better view of the company's outlook, compared to stocks with lower P / E.
How growth rates affect P / E ratios
Earnings growth is probably the most important factor in determining a company's P / E ratio.
This is because companies that are rapidly increasing earnings per share will quickly increase the "E" in the equation.
This means that even if the current P / E is high, it will decrease over time if the stock price remains stable.
Thus, even though an action may seem expensive based on past earnings, it may be cheap based on future earnings.
Most would be impressed by the 19% growth in Shree Pushkar Chemicals & Fertilizers' profits over the past year.
And earnings per share have improved by 15% per year over the past five years.
This could arguably justify a relatively high P / E ratio.
What is Shree Pushkar Chemicals & Fertilizers vs C / B ratio relative to its peer group?
The P / E ratio essentially measures a company's market expectations.
We can see in the picture below that the average P / E (15.6) of the chemical industry companies is higher than the P / E of Shree Pushkar Chemicals & Fertilizers.
This suggests that market players believe that Shree Pushkar Chemicals & Fertilizers will perform worse than other companies in its industry.
Since the market does not seem to be impressed by Shree Pushkar chemicals and fertilizers, it is quite possible that it may surprise on the upside.
You should go further. I like to check if the insiders of the company bought or sold.
Do not forget: the P / E ratios do not take into account the balance sheet
The "price" in P / E reflects the market capitalization of the company.
In other words, it does not take into account the debts or liquidities that the company could have on the balance sheet.
Theoretically, a company can improve its profits (and produce a lower P / E in the future) by borrowing (or spending the remaining cash).
Overall, these expenses may be good or bad, but the key point here is that you need to look at the debt to understand the P / E ratio in its context.
Shree Pushkar Chemicals & Fertilizers balance sheet
Shree Pushkar Chemicals & Fertilizers' net debt represents 3.2% of its market capitalization.
So he does not have as many options as he would have with net cash, but his debt would not have much impact on his P / E ratio.
P / E ratio of Shree Pushkar Chemicals & Fertilizers
Shree Pushkar Chemicals & Fertilizers has a P / E of 12.3. This is below average on the IR market, which is 16.2.
Last year's EPS growth was strong and the level of debt is very reasonable.
If the company can continue to increase profits, the current P / E may be too low.
Since badysts predict that growth will continue, one would expect a higher P / E ratio, so it would be useful to take a closer look.
Investors should look to buy stocks for which the market is wrong.
As Benjamin Graham, a securities investor, put it, "the market is a short-term voting machine, but in the long run it is a weighing machine."
So that free A visual report on the badysts' forecasts could be the key to an excellent investment decision.
Of course, you could find a fantastic investment by looking at some good candidates. So take a look at this free list of companies with little or no debt, whose P / E is less than 20.
Our goal is to provide you with a long-term research badysis based on fundamental data. Note that our badysis may not take into account the latest price sensitive business announcements or qualitative information.
If you notice an error that needs to be corrected, please contact the publisher at [email protected]. This article from Simply Wall St is of a general nature. This is not a recommendation to buy or sell shares, and does not take into account your goals or your financial situation. Simply Wall St has no position on the actions mentioned. Thanks for the reading.
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