Earnings Working Against Tye Soon Limited's (SGX:BFU) Share Price

Explore Tye Soon's Fair Values from the Community and select yours

Tye Soon Limited's (SGX:BFU) price-to-earnings (or "P/E") ratio of 6.8x might make it look like a strong buy right now compared to the market in Singapore, where around half of the companies have P/E ratios above 14x and even P/E's above 26x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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For example, consider that Tye Soon's financial performance has been pretty ordinary lately as earnings growth is non-existent. It might be that many expect the uninspiring earnings performance to worsen, which has repressed the P/E. If not, then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for Tye Soon

Although there are no analyst estimates available for Tye Soon, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Tye Soon's Growth Trending?

Tye Soon's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with earnings down 5.2% overall from three years ago. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 12% shows it's an unpleasant look.

In light of this, it's understandable that Tye Soon's P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Tye Soon revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Tye Soon (at least 1 which is a bit concerning), and understanding these should be part of your investment process.

You might be able to find a better investment than Tye Soon. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.