Little Excitement Around Hap Seng Plantations Holdings Berhad's (KLSE:HSPLANT) Earnings

Hap Seng Plantations Holdings Berhad's (KLSE:HSPLANT) price-to-earnings (or "P/E") ratio of 5.5x might make it look like a strong buy right now compared to the market in Malaysia, where around half of the companies have P/E ratios above 13x and even P/E's above 23x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

With earnings growth that's superior to most other companies of late, Hap Seng Plantations Holdings Berhad has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Hap Seng Plantations Holdings Berhad

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

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as Hap Seng Plantations Holdings Berhad's is when the company's growth is on track to lag the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 71% last year. The latest three year period has also seen an excellent 4,392% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 40% as estimated by the seven analysts watching the company. Meanwhile, the broader market is forecast to expand by 8.1%, which paints a poor picture.

In light of this, it's understandable that Hap Seng Plantations Holdings Berhad's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

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 Hap Seng Plantations Holdings Berhad'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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Hap Seng Plantations Holdings Berhad (1 doesn't sit too well with us) you should be aware of.

Of course, you might also be able to find a better stock than Hap Seng Plantations Holdings Berhad. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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