Little Excitement Around S P Setia Berhad's (KLSE:SPSETIA) Earnings As Shares Take 37% Pounding

S P Setia Berhad (KLSE:SPSETIA) shareholders won't be pleased to see that the share price has had a very rough month, dropping 37% and undoing the prior period's positive performance. Longer-term, the stock has been solid despite a difficult 30 days, gaining 12% in the last year.

After such a large drop in price, S P Setia Berhad may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 10.9x, since almost half of all companies in Malaysia have P/E ratios greater than 17x and even P/E's higher than 32x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

S P Setia Berhad certainly has been doing a good job lately as it's been growing earnings more than most other companies. 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 S P Setia Berhad

If you'd like to see what analysts are forecasting going forward, you should check out our free report on S P Setia Berhad.

Is There Any Growth For S P Setia Berhad?

S P Setia Berhad's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 268% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 6.1% per annum during the coming three years according to the analysts following the company. With the market predicted to deliver 13% growth each year, that's a disappointing outcome.

In light of this, it's understandable that S P Setia Berhad's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

S P Setia Berhad's P/E has taken a tumble along with its share price. 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 S P Setia Berhad's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. 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.

You should always think about risks. Case in point, we've spotted 4 warning signs for S P Setia Berhad you should be aware of, and 1 of them is a bit concerning.

You might be able to find a better investment than S P Setia 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.