Unpleasant Surprises Could Be In Store For Genting Singapore Limited's (SGX:G13) Shares

Genting Singapore Limited's (SGX:G13) price-to-earnings (or "P/E") ratio of 17.9x might make it look like a strong sell right now compared to the market in Singapore, where around half of the companies have P/E ratios below 11x and even P/E's below 7x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Genting Singapore has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Genting Singapore

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

How Is Genting Singapore's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Genting Singapore's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 80% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 783% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 9.9% per year as estimated by the analysts watching the company. With the market predicted to deliver 8.3% growth per annum, the company is positioned for a comparable earnings result.

With this information, we find it interesting that Genting Singapore is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Key Takeaway

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Genting Singapore currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Genting Singapore you should know about.

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.