Lotus Circular Berhad's (KLSE:LOTUSCIR) Business Is Yet to Catch Up With Its Share Price

There wouldn't be many who think Lotus Circular Berhad's (KLSE:LOTUSCIR) price-to-earnings (or "P/E") ratio of 12.2x is worth a mention when the median P/E in Malaysia is similar at about 14x. 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.

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For example, consider that Lotus Circular Berhad's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for Lotus Circular Berhad

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

How Is Lotus Circular Berhad's Growth Trending?

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

Retrospectively, the last year delivered a frustrating 61% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 87% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 15% shows it's an unpleasant look.

With this information, we find it concerning that Lotus Circular Berhad is trading at a fairly similar P/E to the market. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. 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 Bottom Line On Lotus Circular Berhad's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Lotus Circular Berhad currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

It is also worth noting that we have found 3 warning signs for Lotus Circular Berhad (1 is concerning!) that you need to take into consideration.

You might be able to find a better investment than Lotus Circular 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.