Khind Holdings Berhad's (KLSE:KHIND) price-to-earnings (or "P/E") ratio of 6x 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 14x and even P/E's above 24x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.
For example, consider that Khind Holdings Berhad's financial performance has been poor lately as it's earnings have been in decline. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. If you 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.
View our latest analysis for Khind Holdings Berhad
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Khind Holdings Berhad's earnings, revenue and cash flow.
How Is Khind Holdings Berhad's Growth Trending?
Khind Holdings Berhad's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.
Retrospectively, the last year delivered a frustrating 17% 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 1,628% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.
This is in contrast to the rest of the market, which is expected to grow by 8.0% over the next year, materially lower than the company's recent medium-term annualised growth rates.
In light of this, it's peculiar that Khind 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.
The Key Takeaway
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.
Our examination of Khind Holdings Berhad revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. 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.