Sentiment Still Eluding Tye Soon Limited (SGX:BFU)

When close to half the companies in Singapore have price-to-earnings ratios (or "P/E's") above 13x, you may consider Tye Soon Limited (SGX:BFU) as a highly attractive investment with its 5.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Tye Soon has been doing a decent job lately as it's been growing earnings at a reasonable pace. It might be that many expect the respectable earnings performance to degrade, 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.

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?

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

If we review the last year of earnings growth, the company posted a worthy increase of 7.2%. Pleasingly, EPS has also lifted 610% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.2% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that Tye Soon is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Tye Soon currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Tye Soon (of which 2 are significant!) you should know about.

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.