UOL Group Limited's (SGX:U14) Business And Shares Still Trailing The Market

UOL Group Limited's (SGX:U14) price-to-earnings (or "P/E") ratio of 6.9x might make it look like a buy right now compared to the market in Singapore, where around half of the companies have P/E ratios above 12x and even P/E's above 21x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, UOL Group has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for UOL Group

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

Is There Any Growth For UOL Group?

In order to justify its P/E ratio, UOL Group would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 44% gain to the company's bottom line. Pleasingly, EPS has also lifted 5,277% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 19% per annum as estimated by the seven analysts watching the company. With the market predicted to deliver 8.0% growth per annum, that's a disappointing outcome.

With this information, we are not surprised that UOL Group is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On UOL Group's P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of UOL Group's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 2 warning signs for UOL Group (1 is potentially serious!) that you should be aware of before investing here.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.