Lacklustre Performance Is Driving Sports Toto Berhad's (KLSE:SPTOTO) Low P/E
With a price-to-earnings (or "P/E") ratio of 9.3x Sports Toto Berhad (KLSE:SPTOTO) may be sending bullish signals at the moment, given that almost half of all companies in Malaysia have P/E ratios greater than 14x and even P/E's higher than 26x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
Sports Toto Berhad certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
View our latest analysis for Sports Toto Berhad
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Keen to find out how analysts think Sports Toto Berhad's future stacks up against the industry? In that case, our free report is a great place to start.
What Are Growth Metrics Telling Us About The Low P/E?Sports Toto Berhad's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.
Retrospectively, the last year delivered an exceptional 42% gain to the company's bottom line. Pleasingly, EPS has also lifted 55% 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.
Looking ahead now, EPS is anticipated to climb by 7.3% during the coming year according to the seven analysts following the company. That's shaping up to be materially lower than the 11% growth forecast for the broader market.
With this information, we can see why Sports Toto Berhad is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What We Can Learn From Sports Toto 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.
Story continues
As we suspected, our examination of Sports Toto 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.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Sports Toto Berhad (at least 1 which can't be ignored), and understanding them should be part of your investment process.
If these risks are making you reconsider your opinion on Sports Toto Berhad, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.
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