IJM Corporation Berhad (KLSE:IJM) Not Lagging Market On Growth Or Pricing

When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 13x, you may consider IJM Corporation Berhad (KLSE:IJM) as a stock to avoid entirely with its 22.8x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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While the market has experienced earnings growth lately, IJM Corporation Berhad's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for IJM Corporation Berhad

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

How Is IJM Corporation Berhad's Growth Trending?

In order to justify its P/E ratio, IJM Corporation Berhad would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 33% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 304% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 18% per year during the coming three years according to the analysts following the company. With the market only predicted to deliver 12% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that IJM Corporation Berhad's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

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.

As we suspected, our examination of IJM Corporation Berhad's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

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

You might be able to find a better investment than IJM Corporation Berhad. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.