The Market Doesn't Like What It Sees From Golden Pharos Berhad's (KLSE:GPHAROS) Earnings Yet

Golden Pharos Berhad's (KLSE:GPHAROS) price-to-earnings (or "P/E") ratio of 4x might make it look like a strong buy right now compared to the market in Malaysia, where around half of the companies have P/E ratios above 17x and even P/E's above 29x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for Golden Pharos Berhad as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 Golden Pharos Berhad

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

How Is Golden Pharos Berhad's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 182% 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. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 15% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Golden Pharos Berhad's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Golden Pharos Berhad maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, 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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Golden Pharos Berhad (of which 1 shouldn't be ignored!) you should know about.

If you're unsure about the strength of Golden Pharos Berhad's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.