Subdued Growth No Barrier To Gas Malaysia Berhad's (KLSE:GASMSIA) Price

With a median price-to-earnings (or "P/E") ratio of close to 15x in Malaysia, you could be forgiven for feeling indifferent about Gas Malaysia Berhad's (KLSE:GASMSIA) P/E ratio of 14x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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Gas Malaysia Berhad certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Gas Malaysia Berhad

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

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

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

Taking a look back first, we see that the company managed to grow earnings per share by a handy 6.1% last year. EPS has also lifted 30% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 0.8% per annum during the coming three years according to the nine analysts following the company. Meanwhile, the broader market is forecast to expand by 12% each year, which paints a poor picture.

With this information, we find it concerning that Gas Malaysia Berhad is trading at a fairly similar P/E to the market. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining earnings are likely to weigh on the share price eventually.

What We Can Learn From Gas Malaysia 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 Gas Malaysia Berhad's analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings are unlikely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Gas Malaysia Berhad is showing 3 warning signs in our investment analysis, and 2 of those are significant.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.