Investors Still Waiting For A Pull Back In CapitaLand Investment Limited (SGX:9CI)

With a price-to-earnings (or "P/E") ratio of 28.5x CapitaLand Investment Limited (SGX:9CI) may be sending very bearish signals at the moment, given that almost half of all companies in Singapore have P/E ratios under 11x and even P/E's lower than 7x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

CapitaLand Investment certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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How Is CapitaLand Investment's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like CapitaLand Investment's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 169% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 75% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 24% per annum during the coming three years according to the analysts following the company. With the market only predicted to deliver 9.4% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that CapitaLand Investment's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From CapitaLand Investment's 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.

We've established that CapitaLand Investment maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 1 warning sign for CapitaLand Investment that we have uncovered.

If these risks are making you reconsider your opinion on CapitaLand Investment, 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.