Heineken Malaysia Berhad's (KLSE:HEIM) Share Price Not Quite Adding Up

It's not a stretch to say that Heineken Malaysia Berhad's (KLSE:HEIM) price-to-earnings (or "P/E") ratio of 17.3x right now seems quite "middle-of-the-road" compared to the market in Malaysia, where the median P/E ratio is around 18x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Heineken Malaysia Berhad could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. 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.

View our latest analysis for Heineken Malaysia Berhad

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

Is There Some Growth For Heineken Malaysia Berhad?

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

Retrospectively, the last year delivered a frustrating 2.4% decrease to the company's bottom line. Even so, admirably EPS has lifted 134% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 3.5% per annum during the coming three years according to the nine analysts following the company. That's shaping up to be materially lower than the 14% each year growth forecast for the broader market.

In light of this, it's curious that Heineken 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. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From Heineken Malaysia Berhad's P/E?

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 Heineken Malaysia Berhad's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Heineken Malaysia Berhad that you should be aware of.

You might be able to find a better investment than Heineken Malaysia Berhad. 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.

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