TT Vision Holdings Berhad's (KLSE:TTVHB) Share Price Could Signal Some Risk

Explore TT Vision Holdings Berhad's Fair Values from the Community and select yours

With a price-to-earnings (or "P/E") ratio of 31.1x TT Vision Holdings Berhad (KLSE:TTVHB) may be sending very bearish signals at the moment, given that almost half of all companies in Malaysia have P/E ratios under 13x and even P/E's lower than 8x 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 so lofty.

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As an illustration, earnings have deteriorated at TT Vision Holdings Berhad over the last year, which is not ideal at all. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

View our latest analysis for TT Vision Holdings Berhad

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on TT Vision Holdings Berhad's earnings, revenue and cash flow.

Is There Enough Growth For TT Vision Holdings Berhad?

There's an inherent assumption that a company should far outperform the market for P/E ratios like TT Vision Holdings Berhad's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 36%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 29% overall rise in EPS. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 14% shows it's noticeably less attractive on an annualised basis.

With this information, we find it concerning that TT Vision Holdings Berhad is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From TT Vision Holdings Berhad's P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that TT Vision Holdings Berhad currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you settle on your opinion, we've discovered 2 warning signs for TT Vision Holdings Berhad that you should be aware of.

You might be able to find a better investment than TT Vision Holdings 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.