Ingenieur Gudang Berhad's (KLSE:INGENIEU) Earnings Are Not Doing Enough For Some Investors

With a price-to-earnings (or "P/E") ratio of 13.1x Ingenieur Gudang Berhad (KLSE:INGENIEU) may be sending bullish signals at the moment, given that almost half of all companies in Malaysia have P/E ratios greater than 16x and even P/E's higher than 28x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

As an illustration, earnings have deteriorated at Ingenieur Gudang Berhad over the last year, which is not ideal at all. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Ingenieur Gudang Berhad

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Ingenieur Gudang Berhad will help you shine a light on its historical performance.

Is There Any Growth For Ingenieur Gudang Berhad?

There's an inherent assumption that a company should underperform the market for P/E ratios like Ingenieur Gudang Berhad's to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 32%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 17% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Ingenieur Gudang Berhad's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Ingenieur Gudang Berhad revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term 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 5 warning signs for Ingenieur Gudang Berhad (1 is a bit concerning!) that you should be aware of before investing here.

If you're unsure about the strength of Ingenieur Gudang Berhad's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.