Earnings Not Telling The Story For Sime Darby Property Berhad (KLSE:SIMEPROP) After Shares Rise 29%

Sime Darby Property Berhad (KLSE:SIMEPROP) shares have continued their recent momentum with a 29% gain in the last month alone. The last month tops off a massive increase of 149% in the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Sime Darby Property Berhad's price-to-earnings (or "P/E") ratio of 16.8x right now seems quite "middle-of-the-road" compared to the market in Malaysia, where the median P/E ratio is around 18x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Recent times have been advantageous for Sime Darby Property Berhad as its earnings have been rising faster than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Sime Darby Property Berhad

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How Is Sime Darby Property Berhad's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Sime Darby Property Berhad's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 44% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 1.3% per year as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 12% each year, which is noticeably more attractive.

With this information, we find it interesting that Sime Darby Property Berhad is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On Sime Darby Property Berhad's P/E

Its shares have lifted substantially and now Sime Darby Property Berhad's P/E is also back up to the market median. 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.

Our examination of Sime Darby Property Berhad's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 1 warning sign for Sime Darby Property Berhad you should be aware of.

If you're unsure about the strength of Sime Darby Property 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.