Subdued Growth No Barrier To IHH Healthcare Berhad's (KLSE:IHH) Price

When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 15x, you may consider IHH Healthcare Berhad (KLSE:IHH) as a stock to potentially avoid with its 22.1x 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.

Recent times have been pleasing for IHH Healthcare Berhad as its earnings have risen in spite of the market's earnings going into reverse. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for IHH Healthcare Berhad

If you'd like to see what analysts are forecasting going forward, you should check out our free report on IHH Healthcare Berhad.

How Is IHH Healthcare Berhad's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 39% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the analysts covering the company suggest earnings growth is heading into negative territory, declining 30% over the next year. With the market predicted to deliver 15% growth , that's a disappointing outcome.

In light of this, it's alarming that IHH Healthcare Berhad's P/E sits above the majority of other companies. 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. Only the boldest would assume these prices are sustainable as these declining earnings are likely to weigh heavily on the share price eventually.

What We Can Learn From IHH Healthcare 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 IHH Healthcare Berhad's analyst forecasts revealed that its outlook for shrinking earnings 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 are highly unlikely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 1 warning sign for IHH Healthcare Berhad that you need to take into consideration.

You might be able to find a better investment than IHH Healthcare 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.