Pinning Down Teladan Setia Group Berhad's (KLSE:TELADAN) P/E Is Difficult Right Now

There wouldn't be many who think Teladan Setia Group Berhad's (KLSE:TELADAN) price-to-earnings (or "P/E") ratio of 13.9x is worth a mention when the median P/E in Malaysia is similar at about 14x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Teladan Setia Group Berhad has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Teladan Setia Group Berhad

Although there are no analyst estimates available for Teladan Setia Group Berhad, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Teladan Setia Group Berhad's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 22% last year. Still, incredibly EPS has fallen 100% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 19% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's somewhat alarming that Teladan Setia Group Berhad's P/E sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Teladan Setia Group Berhad currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Teladan Setia Group Berhad (1 is significant) you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.

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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.