TIME dotCom Berhad's (KLSE:TIMECOM) P/E Still Appears To Be Reasonable

TIME dotCom Berhad's (KLSE:TIMECOM) price-to-earnings (or "P/E") ratio of 25.8x might make it look like a strong sell right now compared to the market in Malaysia, where around half of the companies have P/E ratios below 13x and even P/E's below 8x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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Recent times have been advantageous for TIME dotCom Berhad as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for TIME dotCom Berhad

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Is There Enough Growth For TIME dotCom Berhad?

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

If we review the last year of earnings growth, the company posted a terrific increase of 33%. As a result, it also grew EPS by 5.9% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 13% each year as estimated by the eight analysts watching the company. That's shaping up to be materially higher than the 9.7% per annum growth forecast for the broader market.

In light of this, it's understandable that TIME dotCom Berhad's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of TIME dotCom Berhad's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 1 warning sign for TIME dotCom Berhad you should know about.

If you're unsure about the strength of TIME dotCom Berhad's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.