Wilmar International Limited (SGX:F34) Could Be Riskier Than It Looks

With a price-to-earnings (or "P/E") ratio of 12.1x Wilmar International Limited (SGX:F34) may be sending bullish signals at the moment, given that almost half of all companies in Singapore have P/E ratios greater than 15x and even P/E's higher than 25x 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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Wilmar International hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Is There Any Growth For Wilmar International?

The only time you'd be truly comfortable seeing a P/E as low as Wilmar International'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 24%. This means it has also seen a slide in earnings over the longer-term as EPS is down 48% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 14% per annum during the coming three years according to the analysts following the company. That's shaping up to be similar to the 13% per year growth forecast for the broader market.

With this information, we find it odd that Wilmar International is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

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 Wilmar International currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for Wilmar International (1 is a bit unpleasant!) that you should be aware of.

If these risks are making you reconsider your opinion on Wilmar International, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.