Market Still Lacking Some Conviction On LHT Holdings Limited (SGX:BEI)

When close to half the companies in Singapore have price-to-earnings ratios (or "P/E's") above 13x, you may consider LHT Holdings Limited (SGX:BEI) as an attractive investment with its 7.4x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

LHT Holdings has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

See our latest analysis for LHT Holdings

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How Is LHT Holdings' Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like LHT Holdings' to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 12%. This was backed up an excellent period prior to see EPS up by 34% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

It's interesting to note that the rest of the market is similarly expected to grow by 9.2% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that LHT Holdings' P/E sits below the majority of other companies. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

The Bottom Line On LHT Holdings' P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that LHT Holdings currently trades on a lower than expected P/E since its recent three-year growth is in line with the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

Plus, you should also learn about these 3 warning signs we've spotted with LHT Holdings (including 1 which is concerning).

If these risks are making you reconsider your opinion on LHT Holdings, 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.