Earnings Not Telling The Story For Press Metal Aluminium Holdings Berhad (KLSE:PMETAL)

Press Metal Aluminium Holdings Berhad's (KLSE:PMETAL) price-to-earnings (or "P/E") ratio of 32.9x might make it look like a strong sell right now compared to the market in Malaysia, where around half of the companies have P/E ratios below 17x and even P/E's below 10x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent earnings growth for Press Metal Aluminium Holdings Berhad has been in line with the market. One possibility is that the P/E is high because investors think this modest earnings performance will accelerate. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Press Metal Aluminium Holdings Berhad

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How Is Press Metal Aluminium Holdings Berhad's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Press Metal Aluminium Holdings Berhad's to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 5.5%. Pleasingly, EPS has also lifted 134% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 17% each year during the coming three years according to the twelve analysts following the company. With the market predicted to deliver 16% growth per year, the company is positioned for a comparable earnings result.

With this information, we find it interesting that Press Metal Aluminium Holdings Berhad is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Bottom Line On Press Metal Aluminium Holdings 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.

We've established that Press Metal Aluminium Holdings Berhad currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Press Metal Aluminium Holdings Berhad with six simple checks will allow you to discover any risks that could be an issue.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com