Vicplas International Ltd (SGX:569) shareholders have had their patience rewarded with a 25% share price jump in the last month.    The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 5.6% over the last year.  

Following the firm bounce in price, given close to half the companies in Singapore have price-to-earnings ratios (or "P/E's") below 12x, you may consider Vicplas International as a stock to avoid entirely with its 20.3x 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.  

For example, consider that Vicplas International's financial performance has been poor lately as its earnings have been in decline.   It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing.  You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.    

Check out our latest analysis for Vicplas International

SGX:569 Price to Earnings Ratio vs Industry December 19th 2023

Although there are no analyst estimates available for Vicplas International, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.  

Is There Enough Growth For Vicplas International?  

Vicplas International's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.  

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 52%.   This means it has also seen a slide in earnings over the longer-term as EPS is down 16% in total over the last three years.  So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.  

Comparing that to the market, which is predicted to deliver 9.2% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we find it concerning that Vicplas International is trading at a P/E higher than the market.  It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects.  There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.  

What We Can Learn From Vicplas International's P/E?

Shares in Vicplas International have built up some good momentum lately, which has really inflated its P/E.      Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Vicplas International currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term.  When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower.  If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.    

We don't want to rain on the parade too much, but we did also find 3 warning signs for Vicplas International that you need to be mindful of.  

If these risks are making you reconsider your opinion on Vicplas International, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.