Market Participants Recognise Keppel Ltd.'s (SGX:BN4) Earnings

When close to half the companies in Singapore have price-to-earnings ratios (or "P/E's") below 11x, you may consider Keppel Ltd. (SGX:BN4) as a stock to potentially avoid with its 14.8x P/E ratio. 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.

We've discovered 3 warning signs about Keppel. View them for free.

Keppel could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Keppel

Want the full picture on analyst estimates for the company? Then our free report on Keppel will help you uncover what's on the horizon.

How Is Keppel's Growth Trending?

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

Retrospectively, the last year delivered a frustrating 7.8% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 33% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 12% each year as estimated by the twelve analysts watching the company. With the market only predicted to deliver 7.8% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why Keppel is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

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 Keppel maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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 3 warning signs for Keppel (of which 1 makes us a bit uncomfortable!) you should know about.

If you're unsure about the strength of Keppel'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.