When close to half the companies in Singapore have price-to-earnings ratios (or "P/E's") above 12x, you may consider Bumitama Agri Ltd. (SGX:P8Z) as an attractive investment with its 8.1x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Bumitama Agri 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Bumitama Agri.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Bumitama Agri's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 16% gain to the company's bottom line. The latest three year period has also seen an excellent 83% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the two analysts covering the company suggest earnings growth is heading into negative territory, declining 3.0% per annum over the next three years. Meanwhile, the broader market is forecast to expand by 10% per annum, which paints a poor picture.

With this information, we are not surprised that Bumitama Agri is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On Bumitama Agri's P/E

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 Bumitama Agri maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Bumitama Agri (including 1 which is concerning).

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.