Wellcall Holdings Berhad (KLSE:WELLCAL) Looks Cheap But Not Cheerful

When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") above 16x, you may consider Wellcall Holdings Berhad (KLSE:WELLCAL) as an attractive investment with its 11.4x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Wellcall Holdings Berhad as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Wellcall Holdings Berhad

Where Does Wellcall Holdings Berhad's P/E Sit Within Its Industry?

We'd like to see if P/E's within Wellcall Holdings Berhad's industry might provide some colour around the company's low P/E ratio. It turns out the Machinery industry in general also has a P/E ratio lower than the market, as the graphic below shows. So this certainly goes a fair way towards explaining the company's ratio right now. Some industry P/E's don't move around a lot and right now most companies within the Machinery industry should be getting stifled. Still, the strength of the company's earnings will most likely determine where its P/E shall sit.

Keen to find out how analysts think Wellcall Holdings Berhad's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. Likewise, not much has changed from three years ago as earnings have been stuck during that whole time. Accordingly, shareholders probably wouldn't have been satisfied with the complete absence of medium-term growth.

Turning to the outlook, the next three years should generate growth of 6.1% each year as estimated by the twin analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 8.2% each year, which is noticeably more attractive.

In light of this, it's understandable that Wellcall 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.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Wellcall Holdings Berhad maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware Wellcall Holdings Berhad is showing 2 warning signs in our investment analysis, you should know about.

If you're unsure about the strength of Wellcall Holdings 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. 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.
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