Despite an already strong run, XMH Holdings Ltd. (SGX:BQF) shares have been powering on, with a gain of 33% in the last thirty days. The last 30 days bring the annual gain to a very sharp 35%.

Even after such a large jump in price, XMH Holdings may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 4.9x, since almost half of all companies in Singapore have P/E ratios greater than 12x and even P/E's higher than 21x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times have been quite advantageous for XMH Holdings as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Is There Any Growth For XMH Holdings?

There's an inherent assumption that a company should far underperform the market for P/E ratios like XMH Holdings' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 212%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 11% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that XMH Holdings' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On XMH Holdings' P/E

Even after such a strong price move, XMH Holdings' P/E still trails the rest of the market significantly. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that XMH Holdings maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with XMH Holdings (including 1 which is potentially serious).

If these risks are making you reconsider your opinion on XMH Holdings, 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.