The Price Is Right For Amway (Malaysia) Holdings Berhad (KLSE:AMWAY)

Amway (Malaysia) Holdings Berhad's (KLSE:AMWAY) price-to-earnings (or "P/E") ratio of 15.3x might make it look like a sell right now compared to the market in Malaysia, where around half of the companies have P/E ratios below 13x and even P/E's below 7x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

With earnings growth that's superior to most other companies of late, Amway (Malaysia) Holdings Berhad has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Amway (Malaysia) Holdings Berhad

Want the full picture on analyst estimates for the company? Then our free report on Amway (Malaysia) Holdings Berhad will help you uncover what's on the horizon.

Is There Enough Growth For Amway (Malaysia) Holdings Berhad?

There's an inherent assumption that a company should outperform the market for P/E ratios like Amway (Malaysia) Holdings Berhad's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 36% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 11% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 30% during the coming year according to the three analysts following the company. With the market only predicted to deliver 8.2%, the company is positioned for a stronger earnings result.

With this information, we can see why Amway (Malaysia) Holdings Berhad 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 Amway (Malaysia) Holdings Berhad's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Amway (Malaysia) Holdings Berhad's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Amway (Malaysia) Holdings Berhad is showing 1 warning sign in our investment analysis, you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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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.

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