Nasdaq
华尔街日报Some Confidence Is Lacking In PETRONAS Dagangan Berhad's (KLSE:PETDAG) P/E
With a price-to-earnings (or "P/E") ratio of 18.1x PETRONAS Dagangan Berhad (KLSE:PETDAG) may be sending bearish signals at the moment, given that almost half of all companies in Malaysia have P/E ratios under 13x and even P/E's lower than 8x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.
There hasn't been much to differentiate PETRONAS Dagangan Berhad's and the market's earnings growth lately. One possibility is that the P/E is high because investors think this modest earnings performance will accelerate. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Check out our latest analysis for PETRONAS Dagangan Berhad
How Is PETRONAS Dagangan Berhad's Growth Trending?
PETRONAS Dagangan Berhad's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 7.0% last year. The latest three year period has also seen an excellent 42% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Looking ahead now, EPS is anticipated to climb by 3.3% during the coming year according to the ten analysts following the company. That's shaping up to be materially lower than the 15% growth forecast for the broader market.
In light of this, it's alarming that PETRONAS Dagangan Berhad's P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.
The Final Word
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
Our examination of PETRONAS Dagangan Berhad's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.
There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for PETRONAS Dagangan Berhad that you should be aware of.
If these risks are making you reconsider your opinion on PETRONAS Dagangan Berhad, 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.