Improved Earnings Required Before IOI Properties Group Berhad (KLSE:IOIPG) Stock's 29% Jump Looks Justified

IOI Properties Group Berhad (KLSE:IOIPG) shareholders have had their patience rewarded with a 29% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 90%.

In spite of the firm bounce in price, given about half the companies in Malaysia have price-to-earnings ratios (or "P/E's") above 16x, you may still consider IOI Properties Group Berhad as an attractive investment with its 13x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times haven't been advantageous for IOI Properties Group Berhad as its earnings have been falling quicker than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for IOI Properties Group Berhad

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

How Is IOI Properties Group Berhad's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 17%. Still, the latest three year period has seen an excellent 74% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Looking ahead now, EPS is anticipated to climb by 2.7% per annum during the coming three years according to the seven analysts following the company. Meanwhile, the rest of the market is forecast to expand by 12% per year, which is noticeably more attractive.

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

The Final Word

Despite IOI Properties Group Berhad's shares building up a head of steam, its P/E still lags most other companies. 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.

As we suspected, our examination of IOI Properties Group Berhad's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with IOI Properties Group Berhad (including 1 which is significant).

You might be able to find a better investment than IOI Properties Group Berhad. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.