With a price-to-earnings (or "P/E") ratio of 5.9x Vibrant Group Limited (SGX:BIP) may be sending bullish signals at the moment, given that almost half of all companies in Singapore have P/E ratios greater than 11x and even P/E's higher than 17x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
Recent times have been quite advantageous for Vibrant Group as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
See our latest analysis for Vibrant Group
Although there are no analyst estimates available for Vibrant Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
Does Growth Match The Low P/E?
The only time you'd be truly comfortable seeing a P/E as low as Vibrant Group's is when the company's growth is on track to lag the market.
If we review the last year of earnings growth, the company posted a terrific increase of 195%. Pleasingly, EPS has also lifted 97% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.
Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 3.3% shows it's noticeably more attractive on an annualised basis.
In light of this, it's peculiar that Vibrant Group'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.
The Key Takeaway
Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We've established that Vibrant Group currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.
We don't want to rain on the parade too much, but we did also find 3 warning signs for Vibrant Group that you need to be mindful of.