Benign Growth For PPB Group Berhad (KLSE:PPB) Underpins Its Share Price

When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") above 14x, you may consider PPB Group Berhad (KLSE:PPB) as an attractive investment with its 10.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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PPB Group Berhad hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for PPB Group Berhad

Keen to find out how analysts think PPB Group Berhad's future stacks up against the industry? In that case, our free report is a great place to start.

How Is PPB Group Berhad's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like PPB Group Berhad's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 7.1%. The last three years don't look nice either as the company has shrunk EPS by 10% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 3.8% per annum as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 12% each year, which is noticeably more attractive.

In light of this, it's understandable that PPB Group Berhad's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On PPB Group Berhad's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of PPB Group Berhad's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for PPB Group Berhad that you should be aware of.

Of course, you might also be able to find a better stock than PPB Group Berhad. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.