IOI Properties Group Berhad (KLSE:IOIPG) Looks Inexpensive But Perhaps Not Attractive Enough

When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") above 16x, you may consider IOI Properties Group Berhad (KLSE:IOIPG) as a highly attractive investment with its 6.3x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, IOI Properties Group Berhad has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for IOI Properties Group Berhad

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Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as IOI Properties Group Berhad's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 111%. The strong recent performance means it was also able to grow EPS by 189% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 22% per year as estimated by the eight analysts watching the company. Meanwhile, the broader market is forecast to expand by 16% per year, which paints a poor picture.

With this information, we are not surprised that IOI Properties Group Berhad is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that IOI Properties Group Berhad maintains its low P/E on the weakness of its forecast for sliding earnings, 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 these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 3 warning signs for IOI Properties Group Berhad (2 don't sit too well with us!) that you should be aware of before investing here.

If you're unsure about the strength of IOI Properties Group 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.