Westports Holdings Berhad (KLSE:WPRTS) Investors Are Less Pessimistic Than Expected

With a price-to-earnings (or "P/E") ratio of 18x Westports Holdings Berhad (KLSE:WPRTS) may be sending bearish signals at the moment, given that almost half of all companies in Malaysia have P/E ratios under 14x 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 as high as it is.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Recent times have been advantageous for Westports Holdings 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 Westports Holdings Berhad

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Westports Holdings Berhad.

Is There Enough Growth For Westports Holdings Berhad?

In order to justify its P/E ratio, Westports Holdings Berhad would need to produce impressive growth in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 15% last year. As a result, it also grew EPS by 11% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 4.7% each year as estimated by the analysts watching the company. With the market predicted to deliver 9.8% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's alarming that Westports Holdings Berhad's P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

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

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

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

It is also worth noting that we have found 1 warning sign for Westports Holdings Berhad that you need to take into consideration.

Of course, you might also be able to find a better stock than Westports Holdings Berhad. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.