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With a median price-to-earnings (or "P/E") ratio of close to 13x in Malaysia, you could be forgiven for feeling indifferent about Y&G Corporation Bhd.'s (KLSE:Y&G) P/E ratio of 11.9x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
Y&G Corporation Bhd certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.
Check out our latest analysis for Y&G Corporation Bhd
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Y&G Corporation Bhd will help you shine a light on its historical performance.
How Is Y&G Corporation Bhd's Growth Trending?
In order to justify its P/E ratio, Y&G Corporation Bhd would need to produce growth that's similar to the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 121% last year. Pleasingly, EPS has also lifted 47% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
It's interesting to note that the rest of the market is similarly expected to grow by 13% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.
In light of this, it's understandable that Y&G Corporation Bhd's P/E sits in line with the majority of other companies. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.
What We Can Learn From Y&G Corporation Bhd's P/E?
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.
As we suspected, our examination of Y&G Corporation Bhd revealed its three-year earnings trends are contributing to its P/E, given they look similar to current market expectations. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.