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.S.P. Southeast Asia Holding Berhad's (KLSE:YSPSAH) P/E ratio of 11.1x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Recent times have been quite advantageous for Y.S.P. Southeast Asia Holding Berhad as its earnings have been rising very briskly. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform 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 not quite in favour.

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What Are Growth Metrics Telling Us About The P/E?

In order to justify its P/E ratio, Y.S.P. Southeast Asia Holding Berhad 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 103% last year. EPS has also lifted 22% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

It's interesting to note that the rest of the market is similarly expected to grow by 8.7% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we can see why Y.S.P. Southeast Asia Holding Berhad is trading at a fairly similar P/E to the market. 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.

The Final Word

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 Y.S.P. Southeast Asia Holding Berhad maintains its moderate P/E off the back of its recent three-year growth being in line with the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.