The Market Doesn't Like What It Sees From Allianz Malaysia Berhad's (KLSE:ALLIANZ) Earnings Yet

When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") above 14x, you may consider Allianz Malaysia Berhad (KLSE:ALLIANZ) as a highly attractive investment with its 4.6x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

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With earnings growth that's superior to most other companies of late, Allianz Malaysia Berhad has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Allianz Malaysia Berhad

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

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Allianz Malaysia Berhad would need to produce anemic growth that's substantially trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 40% last year. The strong recent performance means it was also able to grow EPS by 73% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 42% as estimated by the six analysts watching the company. With the market predicted to deliver 14% growth , that's a disappointing outcome.

In light of this, it's understandable that Allianz Malaysia Berhad's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Allianz Malaysia Berhad'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.

We've established that Allianz Malaysia Berhad maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

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

You might be able to find a better investment than Allianz Malaysia 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.