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Balrampur Chini Mills (NSE:BALRAMCHIN) shareholders are no doubt pleased to see that the share price has had a great month, posting a 32% gain, recovering from prior weakness. That's tops off a massive gain of 103% in the last year.
All else being equal, a sharp share price increase should make a stock less attractive to potential investors. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). So some would prefer to hold off buying when there is a lot of optimism towards a stock. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.
See our latest analysis for Balrampur Chini Mills
How Does Balrampur Chini Mills's P/E Ratio Compare To Its Peers?
Balrampur Chini Mills's P/E of 6.03 indicates relatively low sentiment towards the stock. The image below shows that Balrampur Chini Mills has a lower P/E than the average (14.6) P/E for companies in the food industry.
Its relatively low P/E ratio indicates that Balrampur Chini Mills shareholders think it will struggle to do as well as other companies in its industry classification. Since the market seems unimpressed with Balrampur Chini Mills, it's quite possible it could surprise on the upside. If you consider the stock interesting, further research is recommended. For example, I often monitor director buying and selling.
How Growth Rates Impact P/E Ratios
Earnings growth rates have a big influence on P/E ratios. Earnings growth means that in the future the 'E' will be higher. That means unless the share price increases, the P/E will reduce in a few years. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.
In the last year, Balrampur Chini Mills grew EPS like Taylor Swift grew her fan base back in 2010; the 95% gain was both fast and well deserved. The sweetener is that the annual five year growth rate of 138% is also impressive. With that kind of growth rate we would generally expect a high P/E ratio.
Remember: P/E Ratios Don't Consider The Balance Sheet
Don't forget that the P/E ratio considers market capitalization. Thus, the metric does not reflect cash or debt held by the company. The exact same company would hypothetically deserve a higher P/E ratio if it had a strong balance sheet, than if it had a weak one with lots of debt, because a cashed up company can spend on growth.