Smile-Link Healthcare Global Berhad's (KLSE:SMILE) Shares May Have Run Too Fast Too Soon

When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 20x, you may consider Smile-Link Healthcare Global Berhad (KLSE:SMILE) as a stock to avoid entirely with its 62.2x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

For instance, Smile-Link Healthcare Global Berhad's receding earnings in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Smile-Link Healthcare Global Berhad

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Smile-Link Healthcare Global Berhad's earnings, revenue and cash flow.

How Is Smile-Link Healthcare Global Berhad's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Smile-Link Healthcare Global Berhad's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 68% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 100% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 36% shows it's an unpleasant look.

With this information, we find it concerning that Smile-Link Healthcare Global Berhad is trading at a P/E higher than the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Smile-Link Healthcare Global Berhad's P/E

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Smile-Link Healthcare Global Berhad revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Having said that, be aware Smile-Link Healthcare Global Berhad is showing 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored.

Of course, you might also be able to find a better stock than Smile-Link Healthcare Global Berhad. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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This article by Simply Wall St is general in nature. 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.
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