Earnings Working Against YTL Power International Berhad's (KLSE:YTLPOWR) Share Price Following 30% Dive

YTL Power International Berhad (KLSE:YTLPOWR) shareholders won't be pleased to see that the share price has had a very rough month, dropping 30% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 21% share price drop.

After such a large drop in price, YTL Power International Berhad's price-to-earnings (or "P/E") ratio of 8.5x might make it look like a buy right now compared to the market in Malaysia, where around half of the companies have P/E ratios above 15x and even P/E's above 27x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

YTL Power International 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 low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for YTL Power International Berhad

Keen to find out how analysts think YTL Power International Berhad's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For YTL Power International Berhad?

The only time you'd be truly comfortable seeing a P/E as low as YTL Power International Berhad's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a decent 11% gain to the company's bottom line. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 1.8% per annum as estimated by the twelve analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 13% per annum, which is noticeably more attractive.

In light of this, it's understandable that YTL Power International Berhad's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

The softening of YTL Power International Berhad's shares means its P/E is now sitting at a pretty low level. 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.

We've established that YTL Power International Berhad maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 3 warning signs for YTL Power International Berhad (1 is a bit unpleasant!) that you need to be mindful of.

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

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.