GDB Holdings Berhad's (KLSE:GDB) Earnings Are Not Doing Enough For Some Investors

When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") above 14x, you may consider GDB Holdings Berhad (KLSE:GDB) as a highly attractive investment with its 5.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

With earnings growth that's superior to most other companies of late, GDB Holdings Berhad has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for GDB Holdings Berhad

If you'd like to see what analysts are forecasting going forward, you should check out our free report on GDB Holdings Berhad.

Does Growth Match The Low P/E?

GDB Holdings Berhad's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 202%. The strong recent performance means it was also able to grow EPS by 153% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the one analyst covering the company suggest earnings should grow by 0.5% over the next year. With the market predicted to deliver 15% growth , the company is positioned for a weaker earnings result.

In light of this, it's understandable that GDB Holdings Berhad's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From GDB Holdings 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.

As we suspected, our examination of GDB Holdings Berhad's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 4 warning signs for GDB Holdings Berhad (2 can't be ignored!) that you should be aware of before investing here.

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).

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.