It’s not a stretch to say that I-Berhad’s (KLSE:IBHD) price-to-earnings (or “P/E”) ratio of 15.4x right now seems quite “middle-of-the-road” compared to the market in Malaysia, where the median P/E ratio is around 14x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.
I-Berhad certainly has been doing a great job lately as it’s been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If that doesn’t eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
Check out our latest analysis for I-Berhad
We don’t have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on I-Berhad’s earnings, revenue and cash flow.
Does Growth Match The P/E?
The only time you’d be comfortable seeing a P/E like I-Berhad’s is when the company’s growth is tracking the market closely.
If we review the last year of earnings growth, the company posted a terrific increase of 253%. Still, incredibly EPS has fallen 22% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Weighing that medium-term earnings trajectory against the broader market’s one-year forecast for expansion of 9.7% shows it’s an unpleasant look.
With this information, we find it concerning that I-Berhad is trading at a fairly similar P/E to the market. Apparently many investors in the company are way less bearish than recent times would indicate and aren’t willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh on the share price eventually.
The Bottom Line On I-Berhad’s 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.
Our examination of I-Berhad revealed its shrinking earnings over the medium-term aren’t impacting its P/E as much as we would have predicted, given the market is set to grow. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it’s challenging to accept these prices as being reasonable.
Before you settle on your opinion, we’ve discovered 3 warning signs for I-Berhad (2 shouldn’t be ignored!) that you should be aware of.
If these risks are making you reconsider your opinion on I-Berhad, explore our interactive list of high quality stocks to get an idea of what else is out there.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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