A-Rank Berhad's (KLSE:ARANK) price-to-earnings (or "P/E") ratio of 5.2x 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 25x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

A-Rank Berhad certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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 A-Rank 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 A-Rank Berhad's earnings, revenue and cash flow.

How Is A-Rank Berhad's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as A-Rank Berhad's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 78%. Pleasingly, EPS has also lifted 59% 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.

This is in contrast to the rest of the market, which is expected to grow by 13% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that A-Rank Berhad is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On A-Rank Berhad'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.

We've established that A-Rank Berhad 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.