Sungei Bagan Rubber Company (Malaya) Berhad's (KLSE:SBAGAN) Earnings Are Not Doing Enough For Some Investors

With a price-to-earnings (or "P/E") ratio of 12.9x Sungei Bagan Rubber Company (Malaya) Berhad (KLSE:SBAGAN) 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 39x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been quite advantageous for Sungei Bagan Rubber Company (Malaya) Berhad as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Sungei Bagan Rubber Company (Malaya) Berhad

Although there are no analyst estimates available for Sungei Bagan 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.

Is There Any Growth For Sungei Bagan Rubber Company (Malaya) Berhad?

The only time you'd be truly comfortable seeing a P/E as low as Sungei Bagan Rubber Company (Malaya) Berhad's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 107%. The latest three year period has also seen a 20% overall rise in EPS, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 34% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Sungei Bagan Rubber Company (Malaya) Berhad's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From Sungei Bagan Rubber Company (Malaya) Berhad's P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Sungei Bagan 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. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Sungei Bagan Rubber Company (Malaya) Berhad that you should be aware of.

If you're unsure about the strength of Sungei Bagan 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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