StarHub Ltd's (SGX:CC3) Popularity With Investors Is Clear

StarHub Ltd's (SGX:CC3) price-to-earnings (or "P/E") ratio of 15.5x might make it look like a sell right now compared to the market in Singapore, where around half of the companies have P/E ratios below 10x and even P/E's below 7x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

StarHub certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for StarHub

If you'd like to see what analysts are forecasting going forward, you should check out our free report on StarHub.

What Are Growth Metrics Telling Us About The High P/E?

In order to justify its P/E ratio, StarHub would need to produce impressive growth in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 162%. However, this wasn't enough as the latest three year period has seen a very unpleasant 4.8% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 11% each year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 8.8% per annum growth forecast for the broader market.

With this information, we can see why StarHub is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On StarHub's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of StarHub's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for StarHub you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.