With a median price-to-earnings (or "P/E") ratio of close to 11x in Singapore, you could be forgiven for feeling indifferent about Fraser and Neave, Limited's (SGX:F99) P/E ratio of 11.6x. 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.
With earnings growth that's superior to most other companies of late, Fraser and Neave has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
How Is Fraser and Neave's Growth Trending?
In order to justify its P/E ratio, Fraser and Neave would need to produce growth that's similar to the market.
Retrospectively, the last year delivered an exceptional 40% gain to the company's bottom line. As a result, it also grew EPS by 10% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.
Looking ahead now, EPS is anticipated to climb by 318% during the coming year according to the lone analyst following the company. Meanwhile, the rest of the market is forecast to only expand by 7.5%, which is noticeably less attractive.
In light of this, it's curious that Fraser and Neave's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.
What We Can Learn From Fraser and Neave'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.
Our examination of Fraser and Neave's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.
Plus, you should also learn about this 1 warning sign we've spotted with Fraser and Neave.
Of course, you might also be able to find a better stock than Fraser and Neave. 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.
