Investors Appear Satisfied With Kossan Rubber Industries Bhd's (KLSE:KOSSAN) Prospects

Kossan Rubber Industries Bhd's (KLSE:KOSSAN) price-to-earnings (or "P/E") ratio of 30.9x might make it look like a strong sell right now compared to the market in Malaysia, where around half of the companies have P/E ratios below 13x and even P/E's below 8x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Recent times have been advantageous for Kossan Rubber Industries Bhd as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Kossan Rubber Industries Bhd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Kossan Rubber Industries Bhd.

Is There Enough Growth For Kossan Rubber Industries Bhd?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Kossan Rubber Industries Bhd's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 78% last year. Still, incredibly EPS has fallen 94% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 19% per annum as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 13% per year, which is noticeably less attractive.

In light of this, it's understandable that Kossan Rubber Industries Bhd's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Kossan Rubber Industries Bhd's P/E

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 Kossan Rubber Industries Bhd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Kossan Rubber Industries Bhd is showing 1 warning sign in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than Kossan Rubber Industries Bhd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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.