Kluang Rubber Company (Malaya) Berhad (KLSE:KLUANG) Looks Inexpensive But Perhaps Not Attractive Enough

With a price-to-earnings (or "P/E") ratio of 15.2x Kluang Rubber Company (Malaya) Berhad (KLSE:KLUANG) may be sending bullish signals at the moment, given that almost half of all companies in Malaysia have P/E ratios greater than 21x and even P/E's higher than 40x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been quite advantageous for Kluang Rubber Company (Malaya) Berhad as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Kluang Rubber Company (Malaya) Berhad

Although there are no analyst estimates available for Kluang Rubber Company (Malaya) Berhad, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Kluang Rubber Company (Malaya) Berhad would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 431% last year. The latest three year period has also seen a 21% overall rise in EPS, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 35% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Kluang Rubber Company (Malaya) Berhad is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Final Word

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Kluang Rubber Company (Malaya) Berhad revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with Kluang Rubber Company (Malaya) Berhad (including 1 which makes us a bit uncomfortable).

If you're unsure about the strength of Kluang Rubber Company (Malaya) 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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