iFAST Corporation Ltd.'s (SGX:AIY) P/E Is On The Mark
With a price-to-earnings (or "P/E") ratio of 33.4x iFAST Corporation Ltd. (SGX:AIY) may be sending very bearish signals at the moment, given that almost half of all companies in Singapore have P/E ratios under 14x and even P/E's lower than 9x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
iFAST certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
View our latest analysis for iFAST
Does Growth Match The High P/E?
There's an inherent assumption that a company should far outperform the market for P/E ratios like iFAST's to be considered reasonable.
If we review the last year of earnings growth, the company posted a terrific increase of 41%. The latest three year period has also seen an excellent 566% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Turning to the outlook, the next three years should generate growth of 34% per year as estimated by the seven analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 9.8% each year, which is noticeably less attractive.
In light of this, it's understandable that iFAST's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Bottom Line On iFAST's P/E
While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.
As we suspected, our examination of iFAST's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.
The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for iFAST with six simple checks.
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.