Dayang Enterprise Holdings Bhd's (KLSE:DAYANG) Shares Lagging The Market But So Is The Business

With a price-to-earnings (or "P/E") ratio of 7.8x Dayang Enterprise Holdings Bhd (KLSE:DAYANG) 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 30x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been advantageous for Dayang Enterprise Holdings Bhd as its earnings have been rising faster than most other companies. 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.

See our latest analysis for Dayang Enterprise Holdings Bhd

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

Is There Any Growth For Dayang Enterprise Holdings Bhd?

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

If we review the last year of earnings growth, the company posted a terrific increase of 189%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings growth is heading into negative territory, declining 3.9% each year over the next three years. Meanwhile, the broader market is forecast to expand by 14% per year, which paints a poor picture.

With this information, we are not surprised that Dayang Enterprise Holdings Bhd is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Dayang Enterprise Holdings Bhd'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.

We've established that Dayang Enterprise Holdings Bhd maintains its low P/E on the weakness of its forecast for sliding earnings, 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.

You should always think about risks. Case in point, we've spotted 2 warning signs for Dayang Enterprise Holdings Bhd you should be aware of, and 1 of them can't be ignored.

You might be able to find a better investment than Dayang Enterprise Holdings Bhd. 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.