There's No Escaping Hiap Teck Venture Berhad's (KLSE:HIAPTEK) Muted Earnings Despite A 26% Share Price Rise

Hiap Teck Venture Berhad (KLSE:HIAPTEK) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. But not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 38% in the last twelve months.

Even after such a large jump in price, given close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") above 13x, you may still consider Hiap Teck Venture Berhad as a highly attractive investment with its 3.2x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Hiap Teck Venture Berhad could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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.

Check out our latest analysis for Hiap Teck Venture Berhad

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

Is There Any Growth For Hiap Teck Venture Berhad?

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

Retrospectively, the last year delivered a frustrating 22% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 374% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 18% each year as estimated by the one analyst watching the company. Meanwhile, the broader market is forecast to expand by 9.8% each year, which paints a poor picture.

In light of this, it's understandable that Hiap Teck Venture 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 Bottom Line On Hiap Teck Venture Berhad's P/E

Shares in Hiap Teck Venture Berhad are going to need a lot more upward momentum to get the company's P/E out of its slump. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Hiap Teck Venture Berhad's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 4 warning signs for Hiap Teck Venture Berhad (2 shouldn't be ignored!) that you need to take into consideration.

Of course, you might also be able to find a better stock than Hiap Teck Venture 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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