Subdued Growth No Barrier To IOI Corporation Berhad's (KLSE:IOICORP) Price

When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 13x, you may consider IOI Corporation Berhad (KLSE:IOICORP) as a stock to potentially avoid with its 16.3x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

With earnings growth that's superior to most other companies of late, IOI Corporation Berhad has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for IOI Corporation Berhad

Want the full picture on analyst estimates for the company? Then our free report on IOI Corporation Berhad will help you uncover what's on the horizon.

What Are Growth Metrics Telling Us About The High P/E?

The only time you'd be truly comfortable seeing a P/E as high as IOI Corporation Berhad's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered an exceptional 79% gain to the company's bottom line. Still, incredibly EPS has fallen 6.8% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the analysts covering the company suggest earnings growth is heading into negative territory, declining 8.3% over the next year. With the market predicted to deliver 14% growth , that's a disappointing outcome.

With this information, we find it concerning that IOI Corporation Berhad is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

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.

We've established that IOI Corporation Berhad currently trades on a much higher than expected P/E for a company whose earnings are forecast to decline. When we see a poor outlook with earnings heading backwards, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Plus, you should also learn about these 2 warning signs we've spotted with IOI Corporation Berhad (including 1 which is a bit concerning).

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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.