Singapore Technologies Engineering Limited (SGX:S63) With a price-to-earnings ratio (or ‘P/E’) of 22x, it may look like a strong sell at the moment compared to the Singapore market, where around half of the companies are trading below their P/E ratio. P/E ratios below 12x and even 7x are very common. However, it would be unwise to take the P/E ratio at face value, as there may be an explanation as to why it is so high.
Singapore Technologies Engineering has been performing relatively well, with limited revenue declines compared to most other companies recently. The P/E ratio is probably high because investors believe this relatively good return will continue. If this isn’t the case, existing shareholders might become a little nervous about the viability of the share price, especially if profits continue to decline.
Check out our latest analysis for Singapore Technologies Engineering.
Curious about how analysts think Singapore Technologies Engineering’s future compares to its industry? free Reports are a great place to start.
Does growth equate to a high P/E ratio?
To justify Singapore Technologies Engineering’s P/E ratio, it would need to see outstanding growth that significantly outpaces the market.
Looking back, the company’s bottom line fell by a disappointing 3.4% last year. Even in the last three years, the company’s EPS has decreased by a total of 5.3%, which is not a good situation. So, unfortunately, we have to admit that the company hasn’t done much to grow its revenue over that time.
Turning to the outlook, analysts monitoring the company estimate that it is expected to grow at an annualized rate of 17% over the next three years. The company is well-positioned for better returns, as the market is only forecasting a 6.1% return for the year.
With this in mind, it’s understandable that Singapore Technologies Engineering’s P/E ratio is higher than most other companies. Most investors expect this strong future growth and seem willing to pay more for the stock.
What can we learn from Singapore Technologies Engineering’s P/E ratio?
The power of the price-to-earnings ratio is not primarily as a valuation tool, but rather as a gauge of current investor sentiment and future expectations.
As we expected, our examination of analyst forecasts for Singapore Technologies Engineering reveals that the company’s excellent earnings outlook is contributing to its high P/E ratio. At the moment, shareholders are satisfied with the P/E ratio as they are confident that future earnings are not threatened. Under these circumstances, it is unlikely that stock prices will fall significantly in the near future.
It turns out there are other important risk factors to consider before investing. 2 warning signs for Singapore Technologies Engineering What you need to know.
of course, You might be able to find a better stock than Singapore Technologies Engineering.So you might want to see this free A collection of other companies with reasonable P/E ratios and strong earnings growth.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.