Earnings Not Telling The Story For PLYTEC Holding Berhad (KLSE:PLYTEC)

With a median price-to-earnings (or "P/E") ratio of close to 14x in Malaysia, you could be forgiven for feeling indifferent about PLYTEC Holding Berhad's (KLSE:PLYTEC) P/E ratio of 12x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

For instance, PLYTEC Holding Berhad's receding earnings in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for PLYTEC Holding 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 PLYTEC Holding Berhad's earnings, revenue and cash flow.

How Is PLYTEC Holding Berhad's Growth Trending?

The only time you'd be comfortable seeing a P/E like PLYTEC Holding Berhad's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered a frustrating 22% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 55% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Comparing that to the market, which is predicted to deliver 15% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we find it concerning that PLYTEC Holding Berhad is trading at a fairly similar P/E to the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. 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 Final Word

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 PLYTEC Holding Berhad currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. 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 take the next step, you should know about the 3 warning signs for PLYTEC Holding Berhad (1 is a bit unpleasant!) that we have uncovered.

Of course, you might also be able to find a better stock than PLYTEC Holding Berhad. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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.