There wouldn't be many who think Thai Beverage Public Company Limited's (SGX:Y92) price-to-earnings (or "P/E") ratio of 12.1x is worth a mention when the median P/E in Singapore is similar at about 12x.  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.  

With earnings that are retreating more than the market's of late, Thai Beverage has been very sluggish.   It might be that many expect the dismal earnings performance to revert back to market averages soon, which has kept the P/E from falling.  You'd much rather the company wasn't bleeding earnings if you still believe in the business.  If not, then existing shareholders may be a little nervous about the viability of the share price.    

SGX:Y92 Price to Earnings Ratio vs Industry April 5th 2024

Want the full picture on analyst estimates for the company? Then our free report on Thai Beverage will help you uncover what's on the horizon.  

How Is Thai Beverage's Growth Trending?  

In order to justify its P/E ratio, Thai Beverage would need to produce growth that's similar to the market.  

Retrospectively, the last year delivered a frustrating 8.9% decrease to the company's bottom line.   That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 21% in total.  Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.  

Turning to the outlook, the next three years should generate growth of 5.0%  each year as estimated by the analysts watching the company.  With the market predicted to deliver 8.0% growth  each year, the company is positioned for a weaker earnings result.

With this information, we find it interesting that Thai Beverage is trading at a fairly similar P/E to the market.  Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now.  Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.  

The Final Word

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Thai Beverage currently trades on a higher than expected P/E since its forecast growth is lower than the wider market.  When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower.  Unless these conditions improve, it's challenging to accept these prices as being reasonable.    

We don't want to rain on the parade too much, but we did also find 2 warning signs for Thai Beverage (1 is a bit concerning!) that you need to be mindful of.  

You might be able to find a better investment than Thai Beverage. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.