Enviro-Hub Holdings Ltd.'s (SGX:L23) Popularity With Investors Is Clear

Enviro-Hub Holdings Ltd.'s (SGX:L23) price-to-earnings (or "P/E") ratio of 30.5x 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 10x and even P/E's below 6x 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.

Recent times have been quite advantageous for Enviro-Hub Holdings as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Enviro-Hub Holdings

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 Enviro-Hub Holdings' earnings, revenue and cash flow.

Does Growth Match The High P/E?

In order to justify its P/E ratio, Enviro-Hub Holdings would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 106% last year. The latest three year period has also seen a 28% overall rise in EPS, aided extensively by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Comparing that to the market, which is only predicted to deliver 4.1% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we can see why Enviro-Hub Holdings is trading at such a high P/E compared to the market. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What We Can Learn From Enviro-Hub Holdings' P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Enviro-Hub Holdings revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Enviro-Hub Holdings that you should be aware of.

If you're unsure about the strength of Enviro-Hub Holdings' 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.