Market Cool On C.I. Holdings Berhad's (KLSE:CIHLDG) Earnings

C.I. Holdings Berhad's (KLSE:CIHLDG) price-to-earnings (or "P/E") ratio of 6.4x 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.

Earnings have risen firmly for C.I. Holdings Berhad recently, which is pleasing to see. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Check out our latest analysis for C.I. Holdings Berhad

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

Is There Any Growth For C.I. Holdings Berhad?

In order to justify its P/E ratio, C.I. Holdings Berhad would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings growth, the company posted a worthy increase of 10%. Pleasingly, EPS has also lifted 236% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 8.1% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that C.I. Holdings Berhad's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From C.I. Holdings Berhad'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.

We've established that C.I. Holdings Berhad currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you take the next step, you should know about the 2 warning signs for C.I. Holdings Berhad (1 shouldn't be ignored!) that we have uncovered.

Of course, you might also be able to find a better stock than C.I. 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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