Genting Berhad's (KLSE:GENTING) Shares Not Telling The Full Story

There wouldn't be many who think Genting Berhad's (KLSE:GENTING) price-to-earnings (or "P/E") ratio of 14.3x is worth a mention when the median P/E in Malaysia is similar at about 13x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Genting Berhad hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Genting Berhad

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

How Is Genting Berhad's Growth Trending?

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

Retrospectively, the last year delivered a frustrating 5.0% decrease to the company's bottom line. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 26% each year over the next three years. That's shaping up to be materially higher than the 9.5% each year growth forecast for the broader market.

With this information, we find it interesting that Genting Berhad is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Genting Berhad's P/E

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.

We've established that Genting Berhad currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Genting Berhad, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on Genting Berhad, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.