Deleum Berhad's (KLSE:DELEUM) Earnings Are Not Doing Enough For Some Investors

With a price-to-earnings (or "P/E") ratio of 9.7x Deleum Berhad (KLSE:DELEUM) may be sending bullish signals at the moment, given that almost half of all companies in Malaysia have P/E ratios greater than 18x and even P/E's higher than 34x 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.

There hasn't been much to differentiate Deleum Berhad's and the market's earnings growth lately. One possibility is that the P/E is low because investors think this modest earnings performance may begin to slide. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

See our latest analysis for Deleum Berhad

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

Is There Any Growth For Deleum Berhad?

The only time you'd be truly comfortable seeing a P/E as low as Deleum Berhad's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 6.2% last year. This was backed up an excellent period prior to see EPS up by 238% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 10% per annum during the coming three years according to the three analysts following the company. With the market predicted to deliver 15% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Deleum 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 Bottom Line On Deleum Berhad's P/E

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 Deleum Berhad's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Deleum Berhad that you should be aware of.

Of course, you might also be able to find a better stock than Deleum Berhad. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com