Aimflex Berhad's (KLSE:AIMFLEX) P/E Is On The Mark

Aimflex Berhad's (KLSE:AIMFLEX) price-to-earnings (or "P/E") ratio of 32.6x might make it look like a strong sell right now compared to the market in Malaysia, where around half of the companies have P/E ratios below 15x and even P/E's below 9x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

For example, consider that Aimflex Berhad's financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

See our latest analysis for Aimflex 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 Aimflex Berhad's earnings, revenue and cash flow.

How Is Aimflex Berhad's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Aimflex Berhad's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 23% decrease to the company's bottom line. Even so, admirably EPS has lifted 74% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Comparing that to the market, which is only predicted to deliver 17% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we can see why Aimflex Berhad is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Key Takeaway

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.

As we suspected, our examination of Aimflex Berhad revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Aimflex Berhad that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.