Astro Malaysia Holdings Berhad's (KLSE:ASTRO) P/E Still Appears To Be Reasonable

When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 15x, you may consider Astro Malaysia Holdings Berhad (KLSE:ASTRO) as a stock to avoid entirely with its 31.7x 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 lofty.

While the market has experienced earnings growth lately, Astro Malaysia Holdings Berhad's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Astro Malaysia Holdings Berhad

Keen to find out how analysts think Astro Malaysia Holdings Berhad's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Astro Malaysia Holdings Berhad's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 74%. This means it has also seen a slide in earnings over the longer-term as EPS is down 93% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 59% per annum as estimated by the nine analysts watching the company. With the market only predicted to deliver 14% per year, the company is positioned for a stronger earnings result.

With this information, we can see why Astro Malaysia Holdings Berhad is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

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.

As we suspected, our examination of Astro Malaysia Holdings Berhad's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Astro Malaysia Holdings Berhad (1 is potentially serious!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.