There's No Escaping Aspen (Group) Holdings Limited's (SGX:1F3) Muted Earnings

By
Simply Wall St
Published
June 02, 2021
SGX:1F3
Source: Shutterstock

When close to half the companies in Singapore have price-to-earnings ratios (or "P/E's") above 16x, you may consider Aspen (Group) Holdings Limited (SGX:1F3) as an attractive investment with its 8.8x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings growth that's exceedingly strong of late, Aspen (Group) Holdings has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 out of favour.

Check out our latest analysis for Aspen (Group) Holdings

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SGX:1F3 Price Based on Past Earnings June 3rd 2021
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 Aspen (Group) Holdings' earnings, revenue and cash flow.

Does Growth Match The Low P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 280%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 32% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 19% shows it's an unpleasant look.

In light of this, it's understandable that Aspen (Group) Holdings' P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

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.

We've established that Aspen (Group) Holdings maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Aspen (Group) Holdings (of which 1 doesn't sit too well with us!) you should know about.

If these risks are making you reconsider your opinion on Aspen (Group) Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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