With a price-to-earnings (or "P/E") ratio of 3.4x OSK Ventures International Berhad (KLSE:OSKVI) may be sending very bullish signals at the moment, given that almost half of all companies in Malaysia have P/E ratios greater than 14x and even P/E's higher than 24x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.
Earnings have risen firmly for OSK Ventures International 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 OSK Ventures International Berhad
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Does Growth Match The Low P/E?
In order to justify its P/E ratio, OSK Ventures International Berhad would need to produce anemic growth that's substantially trailing the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 21% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Comparing that to the market, which is predicted to deliver 13% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.
In light of this, it's understandable that OSK Ventures International Berhad's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.
The Bottom Line On OSK Ventures International Berhad's P/E
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 OSK Ventures International Berhad revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.