The Price Is Right For IOI Properties Group Berhad (KLSE:IOIPG)

When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 17x, you may consider IOI Properties Group Berhad (KLSE:IOIPG) as a stock to potentially avoid with its 19.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

IOI Properties Group Berhad could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for IOI Properties Group Berhad

Want the full picture on analyst estimates for the company? Then our free report on IOI Properties Group Berhad will help you uncover what's on the horizon.

How Is IOI Properties Group Berhad's Growth Trending?

There's an inherent assumption that a company should outperform 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 54%. Still, the latest three year period has seen an excellent 32% 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 15% per year during the coming three years according to the eight analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 12% per annum, which is noticeably less attractive.

With this information, we can see why IOI Properties 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.

The Final Word

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.

We've established that IOI Properties Group Berhad maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

We don't want to rain on the parade too much, but we did also find 3 warning signs for IOI Properties Group Berhad (1 is a bit concerning!) that you need to be mindful of.

Of course, you might also be able to find a better stock than IOI Properties Group Berhad. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.