Soilbuild Construction Group Ltd. (SGX:V5Q) Stock Catapults 31% Though Its Price And Business Still Lag The Market

Soilbuild Construction Group Ltd. (SGX:V5Q) shareholders have had their patience rewarded with a 31% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 24% is also fairly reasonable.

Although its price has surged higher, Soilbuild Construction Group may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 6.8x, since almost half of all companies in Singapore have P/E ratios greater than 13x and even P/E's higher than 24x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Recent times have been quite advantageous for Soilbuild Construction Group as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Soilbuild Construction Group

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Soilbuild Construction Group's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

Soilbuild Construction Group's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 208% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 13% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Soilbuild Construction Group's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From Soilbuild Construction Group's P/E?

Despite Soilbuild Construction Group's shares building up a head of steam, its P/E still lags most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Soilbuild Construction Group revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Soilbuild Construction Group, 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.