Fewer Investors Than Expected Jumping On Atlan Holdings Bhd (KLSE:ATLAN)

It's not a stretch to say that Atlan Holdings Bhd's (KLSE:ATLAN) price-to-earnings (or "P/E") ratio of 14.4x right now seems quite "middle-of-the-road" compared to the market in Malaysia, where the median P/E ratio is around 14x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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Atlan Holdings Bhd certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. 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 Atlan Holdings Bhd

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Atlan Holdings Bhd will help you shine a light on its historical performance.

How Is Atlan Holdings Bhd's Growth Trending?

In order to justify its P/E ratio, Atlan Holdings Bhd would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a terrific increase of 141%. Pleasingly, EPS has also lifted 305% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 15% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Atlan Holdings Bhd's P/E sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Atlan Holdings Bhd's P/E

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 Atlan Holdings Bhd currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

Before you take the next step, you should know about the 2 warning signs for Atlan Holdings Bhd (1 doesn't sit too well with us!) that we have uncovered.

You might be able to find a better investment than Atlan Holdings Bhd. 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.