AP Oil International Limited's (SGX:5AU) Share Price Could Signal Some Risk

It's not a stretch to say that AP Oil International Limited's (SGX:5AU) price-to-earnings (or "P/E") ratio of 9.7x right now seems quite "middle-of-the-road" compared to the market in Singapore, where the median P/E ratio is around 12x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Our free stock report includes 4 warning signs investors should be aware of before investing in AP Oil International. Read for free now.

With earnings growth that's exceedingly strong of late, AP Oil International has been doing very well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for AP Oil International

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on AP Oil International will help you shine a light on its historical performance.

Is There Some Growth For AP Oil International?

The only time you'd be comfortable seeing a P/E like AP Oil International's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 293% gain to the company's bottom line. Still, incredibly EPS has fallen 25% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

In contrast to the company, the rest of the market is expected to grow by 14% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that AP Oil International is trading at a fairly similar P/E to the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Key Takeaway

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.

Our examination of AP Oil International revealed its shrinking earnings over the medium-term aren't impacting its P/E as much as we would have predicted, given the market is set to grow. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware AP Oil International is showing 4 warning signs in our investment analysis, and 1 of those is a bit concerning.

If you're unsure about the strength of AP Oil International's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.