B.I.G. Industries Berhad (KLSE:BIG) Screens Well But There Might Be A Catch

When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") above 14x, you may consider B.I.G. Industries Berhad (KLSE:BIG) as a highly attractive investment with its 4.7x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

We've discovered 2 warning signs about B.I.G. Industries Berhad. View them for free.

Recent times have been quite advantageous for B.I.G. Industries 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.

View our latest analysis for B.I.G. Industries Berhad

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on B.I.G. Industries Berhad will help you shine a light on its historical performance.

Is There Any Growth For B.I.G. Industries Berhad?

There's an inherent assumption that a company should far underperform the market for P/E ratios like B.I.G. Industries Berhad's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 189% last year. The latest three year period has also seen an excellent 264% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is only predicted to deliver 16% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's peculiar that B.I.G. Industries Berhad's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On B.I.G. Industries 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.

Our examination of B.I.G. Industries Berhad revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

There are also other vital risk factors to consider and we've discovered 2 warning signs for B.I.G. Industries Berhad (1 shouldn't be ignored!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on B.I.G. Industries Berhad, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.