There wouldn't be many who think Carlsberg Brewery Malaysia Berhad's (KLSE:CARLSBG) price-to-earnings (or "P/E") ratio of 13.6x is worth a mention when the median P/E in Malaysia is similar at about 15x. 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.
With earnings growth that's superior to most other companies of late, Carlsberg Brewery Malaysia Berhad has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
See our latest analysis for Carlsberg Brewery Malaysia Berhad
How Is Carlsberg Brewery Malaysia Berhad's Growth Trending?
The only time you'd be comfortable seeing a P/E like Carlsberg Brewery Malaysia Berhad's is when the company's growth is tracking the market closely.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 7.7% last year. EPS has also lifted 25% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.
Turning to the outlook, the next three years should generate growth of 4.4% each year as estimated by the eight analysts watching the company. With the market predicted to deliver 12% growth per year, the company is positioned for a weaker earnings result.
In light of this, it's curious that Carlsberg Brewery Malaysia Berhad's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.
The Key Takeaway
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
Our examination of Carlsberg Brewery Malaysia Berhad's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.
Plus, you should also learn about these 2 warning signs we've spotted with Carlsberg Brewery Malaysia Berhad (including 1 which doesn't sit too well with us).
If you're unsure about the strength of Carlsberg Brewery Malaysia 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.