A Piece Of The Puzzle Missing From Shin Yang Group Berhad's (KLSE:SYGROUP) Share Price

With a price-to-earnings (or "P/E") ratio of 5.4x Shin Yang Group Berhad (KLSE:SYGROUP) may be sending very bullish signals at the moment, given that almost half of all companies in Malaysia have P/E ratios greater than 15x and even P/E's higher than 24x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

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For example, consider that Shin Yang Group Berhad's financial performance has been pretty ordinary lately as earnings growth is non-existent. One possibility is that the P/E is low because investors think this benign earnings growth rate will likely underperform the broader market in the near future. If not, then existing shareholders may be feeling optimistic about the future direction of the share price.

View our latest analysis for Shin Yang Group 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 Shin Yang Group Berhad's earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as Shin Yang Group Berhad's is when the company's growth is on track to lag the market decidedly.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. Although pleasingly EPS has lifted 286% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is only predicted to deliver 15% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it odd that Shin Yang Group Berhad is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Shin Yang Group Berhad'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.

Our examination of Shin Yang Group Berhad revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

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

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.