Subdued Growth No Barrier To Fraser & Neave Holdings Bhd's (KLSE:F&N) Price

When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 15x, you may consider Fraser & Neave Holdings Bhd (KLSE:F&N) as a stock to potentially avoid with its 20.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Fraser & Neave Holdings Bhd's earnings growth of late has been pretty similar to most other companies. It might be that many expect the mediocre earnings performance to strengthen positively, which has kept the P/E from falling. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Fraser & Neave Holdings Bhd

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

Does Growth Match The High P/E?

Fraser & Neave Holdings Bhd's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered a decent 3.2% gain to the company's bottom line. The latest three year period has also seen a 21% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 6.3% per annum over the next three years. That's shaping up to be materially lower than the 12% each year growth forecast for the broader market.

With this information, we find it concerning that Fraser & Neave Holdings Bhd is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Final Word

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Fraser & Neave Holdings Bhd's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Fraser & Neave Holdings Bhd with six simple checks on some of these key factors.

If you're unsure about the strength of Fraser & Neave Holdings Bhd'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.