Jardine Cycle & Carriage Limited (SGX:C07) Could Be Riskier Than It Looks

When close to half the companies in Singapore have price-to-earnings ratios (or "P/E's") above 13x, you may consider Jardine Cycle & Carriage Limited (SGX:C07) as an attractive investment with its 9.6x 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 limited.

With only a limited decrease in earnings compared to most other companies of late, Jardine Cycle & Carriage has been doing relatively well. It might be that many expect the comparatively superior earnings performance to degrade substantially, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. But at the very least, you'd be hoping that earnings don't fall off a cliff completely if your plan is to pick up some stock while it's out of favour.

View our latest analysis for Jardine Cycle & Carriage

Keen to find out how analysts think Jardine Cycle & Carriage's future stacks up against the industry? In that case, our free report is a great place to start.

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

The only time you'd be truly comfortable seeing a P/E as low as Jardine Cycle & Carriage's is when the company's growth is on track to lag the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 2.3%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 19% overall rise in EPS. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 8.4% each year as estimated by the three analysts watching the company. With the market only predicted to deliver 6.1% each year, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Jardine Cycle & Carriage's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Jardine Cycle & Carriage's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Jardine Cycle & Carriage currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Jardine Cycle & Carriage, and understanding should be part of your investment process.

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.