Shareholders Should Be Pleased With Oiltek International Limited's (SGX:HQU) Price
Oiltek International Limited (SGX:HQU) has a high P/E ratio of 35.8x, compared to the Singapore average of below 14x. This elevated ratio reflects investor confidence in the company's strong earnings growth, which has increased by 49% over the past year and 197% over three years. Analysts predict a 14% annual earnings growth over the next three years, outpacing the market's expected 9%. Despite the high P/E, shareholders remain optimistic about the company's future, although caution is advised due to potential risks.
When close to half the companies in Singapore have price-to-earnings ratios (or "P/E's") below 14x, you may consider Oiltek International Limited (SGX:HQU) as a stock to avoid entirely with its 35.8x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.
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Recent times have been advantageous for Oiltek International as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.
Check out our latest analysis for Oiltek International
Keen to find out how analysts think Oiltek International'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 High P/E?
The only time you'd be truly comfortable seeing a P/E as steep as Oiltek International's is when the company's growth is on track to outshine the market decidedly.
If we review the last year of earnings growth, the company posted a terrific increase of 49%. The strong recent performance means it was also able to grow EPS by 197% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.
Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 14% per year over the next three years. With the market only predicted to deliver 9.0% each year, the company is positioned for a stronger earnings result.
With this information, we can see why Oiltek International is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Final Word
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 Oiltek International maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.
You always need to take note of risks, for example - Oiltek International has 1 warning sign we think you should be aware of.
It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
