PETRONAS Chemicals Group Berhad's (KLSE:PCHEM) Popularity With Investors Is Clear

When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 15x, you may consider PETRONAS Chemicals Group Berhad (KLSE:PCHEM) as a stock to avoid entirely with its 27.7x 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.

PETRONAS Chemicals Group Berhad has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for PETRONAS Chemicals Group Berhad

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

Is There Enough Growth For PETRONAS Chemicals Group Berhad?

PETRONAS Chemicals Group Berhad's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 74%. Even so, admirably EPS has lifted 37% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 45% during the coming year according to the analysts following the company. With the market only predicted to deliver 15%, the company is positioned for a stronger earnings result.

With this information, we can see why PETRONAS Chemicals Group Berhad is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From PETRONAS Chemicals Group 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.

As we suspected, our examination of PETRONAS Chemicals Group Berhad's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 2 warning signs for PETRONAS Chemicals Group Berhad that you need to take into consideration.

If these risks are making you reconsider your opinion on PETRONAS Chemicals Group 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.